Wednesday, 15 February 2012


Can thousands of households get together to negotiate a better deal from the energy companies?

Two organisations think they can and are busy signing up thousands of people who hope to save money on their energy bills.

The consumer organisation Which? together with the campaigning group 38degrees – is in the lead with nearly 90,000 signed up on the two sites.

And thepeoplespower, which introduced the idea to the UK, aims to have at least 10,000 names – and hopes for 20,000 – by the end of March.

When the signing up period ends the two not-for-profit groups will go to the major energy suppliers, as well as most of the smaller ones, to negotiate a deal on price. Give us a good price, they will say, and we will bring thousands of customers to you.

Which? says it will operate a reverse auction – starting at, say, 5p per kWh for gas or 15p for electricity. When one firm offers that price Which? will then ask for a lower bid. And carry on until the lowest price is achieved.

That deal will be offered to the people who have signed up – who will be free to accept or reject it individually.

It is too early to say what people might save. Thepeoplespower says it could be £100. But Which? claims that a similar scheme in Holland resulted in 120,000 people switching in 2011 and saving on average more than €300 each.

Signing up costs nothing and you make no commitment. And the bigger the pool Which? and thepeoplespower take to the negotiating table the better the deal they should be able to get.

You can sign up to both or either – or neither of course – at the websites below. Which? and 38 degrees are the same scheme. In a few weeks you will be asked for more details of your current deal. Negotiations should begin in April.

I wish these schemes well. But will they work?

1. Will the energy companies play?
The big six energy companies already have millions of customers so even a block of 100,000 may not attract them. They are saying little except they are aware of the plans.

The small energy companies measure their customers in the tens of thousands and most could not cope with an influx which would more than double the number of customers overnight. It could be that Which? goes for the big six and the largest of the smaller firms, leaving thepeoplespower to deal with the smallest ones. It is likely to have signed up thousands rather than tens of thousands and is also looking for at least one supplier to offer green energy deals which some of the smaller ones do.

2. Will Which? or thepeoplespower be able to negotiate a good deal?
The negotiation will depend crucially on offering the energy companies a large number of new customers. But with no commitment from the people who have signed up it will be very hard to predict how many will eventually take up the deal. The final number is likely to be well short of the total who have signed up.

Energy companies are past masters at confusion pricing. Can even good negotiators outsmart them to get a deal which is genuinely better? The big companies offer new customers deals which make a loss and then push up prices later. But they are unlikely to want to do that for tens of thousands of customers at once. So the Which? deal may not be as good as a deal an individual could get.

Comparing the offer with the current deal may be difficult – though Which? says it will do that work for people if they email details of their current energy supplier and bills. How accurately that will work is hard to know at this stage.

3. Who will be helped?
At the moment an email address is essential just to sign up and it may be that the best deal can only be negotiated for online customers who read their own meter and get electronic bills. People who do not have internet access may be left out. The same may be true for those unwilling or unable to make a direct debit commitment.

Which? is trying to negotiate a dual fuel deal and an electricity only deal for those without mains gas. There seems little scope to include those on pre-payment meters, who are often the poorest.

There are already other free ways to save money on energy – switch for the first time, change to direct debit, get free insulation from the energy companies, put on a jumper. Will the negotiated deal be better than those – or work in addition to them?

4. What will be the long-term effect?
Will the new deal set a benchmark for cheaper power? Will it introduce real competition into the market? Will it change energy company attitudes to their customers? Or will it just make a relatively small number of middle-class and middle income people feel, or perhaps even be, better off?

Don’t get me wrong. I hope these schemes do work and do change energy company behaviour. But my job is to ask the questions.