When SSE announced in early October that they were to raise household dual fuel prices by 8.2%, champagne corks were heard popping all over the City of London. The tide had finally turned for the bankers.
After three more of the ‘Big 6’ energy firms announced substantial price hikes (British Gas an average increase of 9.2%, Scottish Power 8.6% and nPower 10.4%) even the Westminster Village must have felt elated. The demonization of the banks and of the UK Parliament had moved temporarily over to the energy companies.
Unfortunately for the energy industry, they have failed to address the key issues effectively. As a result, their current tumultuous relationship with the press, politicians and the wider public could prove to be a Cold War – lasting until the first glimpse of summer next year.
October has proved a sobering month for the ‘Big 6’. They have taken a number of bad decisions when communicating with the public. There was the British Gas Twitter engagement which proved an education in how not to use social media. Then there was the decision taken by the heads of five of the ’Big 6’ to avoid the Energy Select Committee yesterday, which did little to win them any friends.
The core issue is that energy companies took the decision to raise prices by almost 10% without effectively explaining why they have decided to do so. Energy is one of the biggest household expenses after mortgages or rent and it is therefore a major concern to so many people.
Energy is a complex and volatile industry which many people, quite justifiably, do not understand. If the energy industry is to overcome this disaster, they must explain to people the basis of their decision to raise prices as soon as possible.
There have been conflicting messages which have negated their cause further. Stephen Fitzpatrick, Managing Director of Ovo Energy, said that wholesale gas has actually got cheaper since May 2011 and cannot understand why the larger energy companies are having to raise prices.
Tony Cocker, Chief Executive of Eon, has called for “a very thorough Competition Commission inquiry”, a call supported by EDF, however Centrica believe it is “unnecessary”.
It may be that the industry cannot speak as one voice on everything and indeed there is a divide between the Big 6 and the smaller companies, but industry infighting has added to the backlash from politicians, the media and the public.
The Big 6 have enormous corporate identities, employing tens of thousands of people, achieving hundreds of millions of pounds of profits every year in the UK. Decisions to raise prices by up to 10% are not made at the pub or drafted on the back of a cigarette packet, they are based on external factors and are calculated at length over a considerable period of time.
Energy companies have failed to convincingly explain why they have had to raise their prices and why it is not simply an act of excessive profiteering. They have raised energy prices for a reason but have not delivered an explanation as to why this is necessary.
This is a communications battle the energy industry is losing badly. They are on the back foot and are on borrowed time.
Temperatures in October have been above average but are starting to get colder. It is only a matter of time before the cold weather sets in and vulnerable customers will be at risk because of a fear of the sharp rise in prices.
Age UK have estimated that 24,000 people will die from the cold weather this winter. If energy companies fail to find answers and crucially, communicate these answers effectively, they will, rightly or wrongly, be further demonised.
Undoubtedly, this will result in political interference in the sector, a move nobody from the energy industry wants to see.