Ofgem have threatened to take charge of Scottish Power with a selling ban if they don’t offer better customer service for energy consumers within the next three months. It’s a brave move by Ofgem, and it seems to be a case of punishing to make an example. Continual warnings to The Big Six to improve behaviour in terms of billing, customer service and pricing have fallen on deaf ears, and Ofgem have finally stepped up try and encourage better customer service.
Senior partner Sarah Harrison stated, ‘In a properly functioning market we would expect companies to compete keenly on service.’. But is the UK a ‘properly functioning market’?
In June, Npower were warned to give better customer service and lower customer complaints or suffer a telesales ban, and this latest reflection on behavior suggests Ofgem are moving away from the previous fines placed on misbehavior and hitting harder by threatening energy providers with customer loss.
As with Npower reforming it’s billing and services just two months after receiving the ultimatum from Ofgem, Scottish Power will no doubt be trying hard to resolve customer issues and offer better customer service, but what does it say about The Big Six if when threatened with real customer and financial loss, they can suddenly sort out all problems that have failed to be even looked at over years of public dissatisfaction?
We feel these kind of regulatory threats, although harsh, could be the answer to energy providers bad behavior. The market ”reform” that was put in place to make the market ”more simple, clearer and fairer” by cutting down the amount of tariffs single energy providers could offer, was a big and complicated, whereas a simple consequence for bad behavior may have a lasting effect. Don’t change the system, change the consequences.
The Big Six may face a loss of a quarter of their customers by 2020 if they don’t improve customer service; will the big six become the small six by 2020? Where this will make room for other smaller suppliers with more competitive tariffs, consumers will still suffer as the average energy bill will be approx 20% higher. A recent report Citi on the changes in the energy market said
“Due to increasing competition we see the market share of the ‘Big 6’ in energy supply declining from 98% in 2013 to below 70% by 2020. When combined with declining demand and lower margins the total profit pool available to the large energy suppliers could fall [by about] 40% from [about] £1.2bn in 2013 to just £700m.”
Reports like this are grim news for the main suppliers and their shareholders, but a huge inspiration for independent energy suppliers to continue as they are; offering cheaper tariffs. Historically, customer service, or rather the lack of, has been the bugbear of many consumers; energy suppliers didn’t care because they didn’t have to. But now with OFGEM fighting the consumer corner and smaller independent companies coming to the table with no previous reputations, will it force those remaining of the big six to be more conscientious toward their customers needs.
Citi (an American multinational banking and financial services corporation) noted that Centrica; gas and electricity provider under the British Gas label, reported earnings before interest and taxes of more than £600m from residential supply in 2012. They stated
“If the supply market does develop as the current trends suggest and the available profit pool declines by the estimated 40% we may well see some participants simply running their supply business to maximise cashflow in the short term and exit the market at some point,”.
Citi also believes that the the current 70% market share that the big six hold could be reduced to less than 50% in coming years because of the cuts in available renewable energy subsidies twinned with the closure of traditional energy plants. In the past year, the big six’s market share has fallen from 98% to 92% in the last year alone, thought to be partly driven by consumer anger about last autumns price rises.
Independent consultants Cornwall Energy produced figures that indicate customers hold 3.8m accounts with the smaller suppliers and 45.9m with the big six, it will be interesting to see how the balance tips in the coming years.