Monday, 7 May 2012

The Big Energy Switch Swindle?

You may be aware of The Big Switch, a reverse auction being organised by campaign groups 38 Degrees and Which. you can sign up here to participate in the event which allows you to switch to the winning deal if it suits you.  You are not committed to switching but if you don't preregister you can not participate.

I have a few issues with this approach:

To register you need to provide your personal details, some of which will be passed to the energy companies participating in the auction. The example of such information is your meter numbers.  The energy companies will be able to use this information to assess how many new customers they may gain if they win the auction or how many existing customers they may lose (and how profitable or otherwise those customers are and hence decide how keen they are to win. From the energy companies perspective, this is little more than a marketing exercise.

A closer look at the terms and conditions of the offer show that there are no guarantees, prices may fluctuate at  any time after switching and the savings illustration that you will be given is meaningless.  In effect you are taking a gamble just the same as switching at any other time and the energy companies can give low prices which are, in effect introductory discounts which can be recouped at a later time through tie ins and higher future unit rates.

If my perspective in the previous paragraph is incorrect, how will the energy companies maintain their healthy profit levels? By charging more to other customers who have not participated in The Big Switch.  The latest figures on the website show that 286,000 people have registered to participate which sounds a lot but is around 1% of the customers of the big six energy companies. Those most in need of reduced energy costs, including the elderly and other vulnerable people, do not necessarily have access to this type of online deal and those with prepayment meters are normally excluded from the best deals. In fact the Terms and Conditions state the personal information may be used by the energy companies to determine whether the energy companies will allow individuals to participate in the scheme.

It is not clear what benchmark will be used to determine the winner so it may be that, of the 286,000 participants, some would save and others wouldn't depending on their consumption levels and mix of gas and electricity used and the supply terms and conditions.

A better arrangement could have been one where Which/38 Degrees set the conditions for the energy companies to bid such as that the deals are open for all, regardless of payment mechanism, that there are no lock-ins and that there are restrictions on how much and when prices can vary.  The energy companies would then price for supplying energy under standard terms rather than using small print and future price rises to pay for loss-leaders.  This would also put more of the risk  back on to the energy company that make the big decisions such as future energy contracts and mix of generation types. Currently customers pay the price of these decisions whether good or bad.

The fact that the big energy companies are participating is a sure sign that they do not expect to lose much revenue over it, in fact I'm sure they see it as a positive Public Relations exercise.  Meanwhile those in most desperate fuel poverty will see no benefit.

Are you taking part in The Big Switch? Will it save you money? Will it change the domestic energy market?

Or is it just another chance for the Big Six to pull the wool over our eyes and get some good press coverage?

Related Links:
The Big Switch
The Big Switch Ts & Cs

Related Posts:
Energy Market Reform

And for the follow up: The Big Energy Switch Swindle - Part 2




2 comments:

  1. News today is that EDF Energy has
    announced it will participate in Which?'s Big Switch scheme. Of course, the biggest winner in this scheme will be Which? who will get paid commission for all the switches, rather than the big six (see http://www.ukpower.co.uk/the-big-six-energy-companies).

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    Replies
    1. This really depends on how good an offer the energy companies make. If half of those registered follow through and switch to a new supplier, Which will earn approximately £6m (150,000 people at £40 each). Not bad for a £600k investment. On the other hand, if the energy companies don't deliver and less than 15,000 people switch they stand to loose money.

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