Consuming Issues: Energy giants are milking a £25bn oligopoly
Saturday 25 September 2010
It doesn't take a genius to work out that oligopolies – where a few large companies dominate a market – tend to exploit customers, nor that, in energy – one of the biggest areas of consumer spending – Labour's constant boasts about taking "tough decisions" turned out to be flaccid words.
After the Conservatives privatised energy 20 years ago, suppliers laid off staff and cut bills. Politicians became complacent because customers were receiving cheaper power than state-owned suppliers on the Continent. They didn't worry there was too little investment, meaning that power stations now require a £200bn overhaul. Nor did they mind that ownership of the industry was concentrating in ever fewer hands. Of 20 electricity and gas suppliers in the early 1990s, just six remain: British Gas, EDF, Eon, npower, ScottishPower and Scottish & Southern. They supply 99.5 per cent of homes, more than their counterparts in banking and food, where oligopolies are also emerging.
Two years ago the six biggest current account providers – Barclays, HBOS, HSBC, Lloyds, Nationwide and RBS – had 84 per cent of the market. With Santander's inclusion following the Lloyds-HBOS merger, the big six now have about 90 per cent. The Co-op, Yorkshire and Clydesdale banks are sizeable rivals.
Asda, Co-op & Somerfield, Morrisons, Sainsbury's, Tesco and Waitrose have 81.6 per cent of grocery spending; Marks & Spencer and Budgens are alternatives.
All this goes some way to explain why energy firms, which have no hefty competitors, have mediocre prices and confusing bills. In theory, their poor performance should attract new entrants, and two new firms have indeed arrived. But despite undercutting the Big Six, First:Utility and Ovo are having difficulty growing.
Take First:Utility. It says that despite being a £30m-a-year business, it finds it difficult to buy wholesale power. Generators offer it the same volume of power day and night ("a flat baseload") when it wants most during the day when it is used. Another problem is that the unit of sale is equivalent to 25,000 customers. That is fine if you have millions of customers, but not so good if you have 45,000. First:Utility has to engage in a complex financial manoeuvre requiring collateral to buy any fuel at all, tying up working capital and constraining growth.
Any supplier reaching 50,000 customers must join the Carbon Emissions Reduction Target (CERT) . The industry-funded scheme for lagging low-income households is good in principle, but First:Utility does not have many low-income customers, nor does the scheme take account of its voluntary installation of smart meters. Administration costs are high, meaning – First:Utility says – that its 50,000th customer would cost it £2.5m. There are other problems too complex to outline here. But overall, First:Utility is finding it harder to succeed in energy than its former business, telecoms.
Its finance officer, Darren Braham, says: "Two years of [our first] five years were taken up sorting out accreditation and finding someone to buy the energy from and getting the smart meters. So the set-up phase was about two years, whereas with with telecoms it was six months. After five years, we have 40,000-plus customers. Five years after we launched telecoms, we had 500,000 customers. There are massive new issues for any entrant in terms of growing the business."
Chris Huhne, the Secretary of State for Energy has ended suppliers' "outrageous" right to take 65 days to notify a price rise. He might also want to remove some of these barriers in his Energy Bill this autumn.
Heroes and villains: Catering giant makes free-range promise
Hero: Westbury Street Holdings
From next month Westbury will use only free-range eggs in its catering companies, such as Caterlink, Holdroyd Howe and Baxter Storey, which cook meals for such clients as Aston Martin, Barclays and, appropriately, Egg. Seven million eggs a year will come from Staveley's Eggs in Chorley, Lancashire.
Villains: Food firms
Forty-two suppliers and retailers have failed to honour the most important promise they made five years ago to reduce waste. They dumped less food between 2005 and 2009, but the annual volume of plastic, paper and other packaging stayed at 2.9 million tonnes. The voluntary deal is known as the Courtauld Commitment.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 Planes go hybrid-electric in important step to greener flight
- 3 Antonio Martin shooting: Mayor says there should be 'no comparison' to Ferguson
Nigel Farage defends Kerry Smith 'ch***y' comment: 'If you are going for a Chinese, what do you say you’re going for?'
Rozanne Duncan: Ukip expels councillor for 'jaw-dropping' comments made in BBC TV interview
British actor Idris Elba cannot star as James Bond because he is black, says shock jock Rush Limbaugh
Germany anti-Islam protests: 17,000 march on Dresden against 'Islamification of the West'
Panic Saturday: 13 million Britons spend £1.2bn – while 13 million others across the country live in poverty unable to afford food
BBC director Danny Cohen: Rising UK antisemitism makes me feel more uncomfortable than ever
iJobs Money & Business
Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...
£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...
£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...
£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...
Day In a Page
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens