People power: rejecting the Big Six through collective switching

5 January 2016 (Last Updated January 5th, 2016 18:30)

Collective switching schemes have emerged as an alternative to the high prices of the UK's 'Big Six' major utilities. Why have the country's biggest energy suppliers gained such a toxic reputation among their customers, and does the power of collective bargaining hold the key to increasing competition, boosting support for renewables and reforming the pricing systems of the big players?

People power: rejecting the Big Six through collective switching

Electricity

Image courtesy of Philippe Put


For many years in the UK, an increasingly toxic relationship has been building up between large-scale utilities and their customers. From the consumer perspective, the perception is that the country's 'Big Six' major energy suppliers - British Gas, E-On, Npower, EDF Energy, Scottish Power and SSE - routinely overcharge their customers for energy.

There are now credible statistics to back-up the resentment that consumers have been harbouring for years. In summer 2015, the UK's Competition and Markets Authority (CMA) published an energy market report that was a year in the making. The report concluded that between 2009 and 2013, large utilities had collectively charged customers £1.2bn more than they would have in a competitive environment.

The UK energy market has become significantly more competitive as new providers have emerged from obscurity to claim a 10% slice of the market with their cheaper fixed-price tariffs, but as the CMA investigation's chairman Roger Whitcomb notes, the complexity of energy billing has left customers ill-equipped to shop around for better prices.

"The confusing way energy is measured and billed can make comparing deals understandably daunting," he said. "The result is that some energy suppliers know they don't have to work hard to keep these customers. It's notable that there are such high levels of complaints about customer service."

Collective switching: taking the power back

Will Hodson, who co-founded collective switching organisation The Big Deal at the outset of 2014, argues that the Big Six are intentionally abusing the loyalty of their long-standing customers.

"70% of Big Six customers are on the standard variable tariff," he says. "The standard variable tariff is a great illustration of how the energy industry obfuscates ugly truths. The standard variable tariff is reliably the worst deal on offer, and that's what the Big Six like to have the majority of their customers on. That's a disgrace because it doesn't feel right that loyalty is being punished rather than rewarded."

The collective switching concept - by which an intermediary gathers customers into a large group to leverage a better deal from a supplier - has emerged in the last few years as a strong option for energy users looking for pastures new, and the savings that are possible are eye-opening: in its collective switch that took place in autumn 2014, The Big Deal says it saved participants an average of £303 a year. All in all, the company has presided over £30m in switched custom, mostly away from the major utilities and towards independent suppliers.

"The standard variable tariff is reliably the worst deal on offer, and that's what the Big Six like to have the majority of their customers on."

Collective switching received a boost in the UK under the Lib Dem-Conservative coalition government through the support of the Department for Energy and Climate Change (DECC) and former Energy Secretary Ed Davey, who in 2013 described the concept as "a fantastic means of empowering consumers and enabling them to save money on their bills". Davey paved the way for a number of local or county council-led collective switching initiatives, including the Cornwall Together scheme and a group in his former constituency of Kingston and Surbiton in south-west London.

For Hodson, the council-led schemes were a positive start, but it took the efforts of a new wave of collective switching companies like The Big Deal to truly start realising the concept's potential.

"While I think [council-led schemes] managed to reach people who didn't necessarily always engage with the market, I think to the outsiders there was a nagging suspicion that the deals that collective switches provided weren't even better than what was available on comparison sites as per normal," he says. "So I think at first, collective switching looked as though it wasn't going to fulfil its promise.

"We were the first collective switch to come along and create deals that were better than anything available on the market. That was the first thing we introduced to collective switching that really raised the bar. We ended up with a two-year deal with our very first collective switch, and then we moved on to doing one-year deals that were consistently better than anything available on comparison sites."

A much-needed boost for renewables

As collective switching continues to evolve, it has begun to expand from its starting point of harnessing communal power to achieve better deals. The scope of The Big Deal's campaigns has widened through high-profile partnerships with The Sun - Britain's most-read daily newspaper - and, more recently, campaign group 38 Degrees, which since its foundation in 2009 has galvanised millions of members to campaign on issues as diverse as the parliamentary expenses scandal, privatisation in the National Health Service and government cuts.

"I think [38 Degrees is] probably one of the best organisations in the UK, if not the world, at mobilising its members behind causes they believe in," says Hodson. "We shared a lot of their values around things like collective action and people power, and it was our enormous good fortune to have the opportunity to work together with them."

The 38 Degrees partnership is an apt demonstration of the fact that collective switching campaigns are now increasingly embracing a wider range of participants' priorities, beyond cost concerns. The 38 Degrees collective switch, which was unveiled by the non-profit at the beginning of September 2015, is billed as the Clean Energy Switch, with members' preference for the provision of clean energy built into the scheme. Hodson says that, while clean energy switching should never be seen as a replacement for state investment, movements of this kind give people the voice to support clean energy at a time when the British Government is slashing support for renewables.

"I think it's of enormous significance that so many people are willing to say, 'sustainability matters to us.' From the point of view of the renewables industry, seeing organic consumer demand swing behind renewable energy is an enormous reassurance. Because a customer who goes to clean energy is likely not only to stick with it, but also to encourage friends [to do the same]. If those guys go on to tell friends that this is simple and we should do it, especially at the right price, that's a shot in the arm for the clean energy industry."

Hodson won't comment on the current status of the Clean Energy Switch, but described the campaign as a "massive success".

Building trust

Given that collective switching grew out of the rubble of the spoiled relationship between the Big Six and their customers, establishing an unshakeable trustworthiness that separates this new movement from the status quo is essential.

"When you reach out to people who have not been treated right by energy suppliers and you say, 'we can do it better,' trust is all-important," says Hodson.

This urge to build trust has led Hodson and The Big Deal into a very public quarrel with price comparison websites such as uSwitch and MoneySuperMarket, which it has accused of hiding the best deals from customers if it means the intermediary will miss out on a commission. The Big Deal charges a small fee for all switchers, which Hodson says is a far more transparent approach. Taking a stand on issues like this makes it all the more important that collective switching schemes, and the energy providers benefiting from these transfers, hold themselves to the highest standards.

"We've exposed these so-called 'consumer champions' for hiding the best deals from consumers."

"We've exposed these so-called 'consumer champions' for hiding the best deals from consumers," explains Hodson. "If you make noises like that, and we think it's absolutely right to shine a light on this practice wherever it is in the industry, it becomes central to your business that you do everything at every step of your operations the right way."

It's a standard that can be hard to live up to; First Utility, one of The Big Deal's energy partners, faced heavy criticism at the tail-end of 2014 as new customers experienced billing issues, unresolved complaints and long waiting times. The Warwick-based energy supplier, whose customer base ballooned from 300,000 to 650,000 in 2014, has promised to invest £20m in improving its customer service. Hodson says the company is managing the controversy well and understands that rapid growth can lead to complaints, but warns that poor customer service bears a strong association with the companies that switchers are trying to move away from, so confidence in their new supplier must be high.

Ultimately, the growth of collective switching represents a heartening democratisation of the energy market, and may help stimulate support for cleaner energy generation and, through strong competition, prompt complacent utilities to adapt and reform their pricing so that fairness and transparency become the norm rather than the exception.

"I think that collective switches and an organisation like The Big Deal is a new kind of intermediary, which has put the biggest possible premium on trust and trustworthiness," says Hodson. "We want to move forward to keep an ongoing role, to be there for our customers on an ongoing basis. That's something that suppliers have to get used to - it's the future and it's what our members want."