Time to ditch the Big Six… label
One rival supplier, Bulb, recently criticised the so-called ‘big six’ for all setting their prices to within a few pounds of the new cap on default tariffs.
But it’s plain wrong to present this as a ‘big six’ issue. In total, 27 energy suppliers of all shapes and sizes have also set their prices within the same narrow range.
The reason for this is the cap has been set at a level at which does not fully reflect the true cost of providing energy to all customers. Faced with the option of selling energy at a loss, or selling it at break even or a very small profit margin, most companies have logically opted to price at the level of the cap.
Bulb itself has chosen to price below the cap, but has also recently posted a £24m loss, due to ‘costs associated with acquiring new members’ and ‘investment in growth’. That’s its choice and in a competitive market, different companies will pursue different strategies, giving customers more options. Time will tell how sustainable these strategies are over the longer term.
In recent months, we’ve seen many cases of how the irresponsible practice of under-charging for energy can take its toll – but not for customers of the suppliers who go out of business, like the 235,000 or so supplied by the now-bust Economy Energy. Their money is protected in a scheme that passes the costs of failure on to everyone else. Sadly, when suppliers can’t cover their costs, it’s the customers of more responsible businesses that pick up the tab. Martin Cave, chairman of Ofgem, voiced his concern this week that unsustainable business models “can manifest in shoddy customer service” and that the costs associated with supplier failures “are met by the rest of suppliers and ultimately their customers”.
Taking a step back, this is further evidence that the distinction between the ‘bad’ ‘big six’ and the ‘good’ new entrants, while useful to the latter group, is becoming less and less relevant. It’s misleading customers and making it harder for them to make an informed choice by dumbing down their options to ‘big or small’.
There are huge differences between companies in both groups and this presents customers with a much more interesting and rewarding choice.
A quick look at the latest Citizens Advice energy supplier performance report, which ranks 34 suppliers on a wide range of service criteria, is revealing. First place goes to a smaller supplier – So Energy, with 4.7 stars out of five. Second is ‘big six’ supplier SSE with 4.4 stars. 18 places separate SSE, the best performing of the ‘big six’, from EON, the lowest ranked of the larger suppliers. The worst 14 performers are all smaller suppliers. This shows there’s a lot more to it than big vs small.
Equally, public data shows that there are major differences between the ‘big six’ in terms of their financial performance. In 2017, Npower made a loss of over £100m, EDF barely broke even while others like British Gas and SSE made money. There will be many different reasons for this but the point is these are very different companies. The cap will cut revenues further and require major cost savings, and only the most efficient operators will be in the black. Among smaller suppliers, too, there are big differences. More than ten have ceased trading since 2016, but others have grown steadily and are financially stable.
Running a responsible business that makes enough money to cover its costs also enables us to invest in the future and provide additional support and care for vulnerable customers – something that many smaller suppliers do not do to anything like the same extent.
So, after ten years of dramatic change in the energy market, the old ‘big six’ label is past its sell-by date. There are brilliant large companies and there are terrible small companies and vice versa.
Customers aren’t all just looking for a cheap price – they want quality service, reliability, integrity and value for money. And the beauty of competition in this market, to the extent that it can survive under a price cap, is that customers can now get that from far more companies than they could before and switching is easier than ever.
Our collective responsibility now is to help them make a fully informed choice rather than just reaching for a familiar, and increasingly misleading, soundbite.