:00:00. > :00:10.two years ago. Now on BBC News ` The Bottom Line
:00:11. > :00:16.with Evan Davis. In the world up the energy Company 's popular. Certainly
:00:17. > :00:19.not in the UK which has been conducting a fascinating experiment
:00:20. > :00:27.in running a deregulated energy market. Today, we'll hear from small
:00:28. > :00:30.companies, challenges, trying to take on the big companies and bid
:00:31. > :00:33.them at their own game. We will also hear from someone who should make it
:00:34. > :00:39.easier for challenges to challenge by helping consumers to choose their
:00:40. > :00:44.provider. Each week, influential leaders gather in London for the BBC
:00:45. > :00:47.radio four programme, The Bottom Line. You can see it as well as hear
:00:48. > :01:03.it. Let us start by meeting our two
:01:04. > :01:09.upstarts and our other guests as well. And taking a view minutes to
:01:10. > :01:12.hear about their businesses. Dale Vince is the founder of Ecotricity.
:01:13. > :01:19.Yours is a company that generate electricity, or in electricity as
:01:20. > :01:22.well as retails it. Before we go into that, tell us about your life
:01:23. > :01:27.beforehand. You had an interesting life, not necessarily the one that
:01:28. > :01:34.would think you would be an entrepreneur. Mac I became a
:01:35. > :01:38.traveller and spent ten years living in losses, ambulances, fire engines
:01:39. > :01:47.and all sorts of things. I was pursuing a different way to live.
:01:48. > :01:54.Living off the grid. I was just rejecting the nine to five and being
:01:55. > :01:58.told what to do. What was the moment when you said, actually, I want to
:01:59. > :02:04.go into business. I thought to myself, this was my epiphany. If I
:02:05. > :02:12.could make a week difference in the world and bring about change. I
:02:13. > :02:16.thought I will drop back in and build a windmill and that was my
:02:17. > :02:22.plan. So it started with the building of the turbine? And went on
:02:23. > :02:27.from there. Now the other businesses, we have these two bit.
:02:28. > :02:32.We have generation, green energy regeneration and retail. In terms of
:02:33. > :02:39.the size of the business, what is more important? They support each
:02:40. > :02:44.other. You have got to make the stuff in order to sell the stuff. If
:02:45. > :02:50.you look at where we are at the moment. We have a degree of price
:02:51. > :02:59.independence. We are independent of fossil fuels. We generate our
:03:00. > :03:02.electricity from the wind. All that to heart in the market over the last
:03:03. > :03:06.few months about rising energy prices, people have been pointing
:03:07. > :03:12.the finger at the wrong things. It is the rising price of fossil fuels
:03:13. > :03:21.which nobody can do anything about. How many customers have signed up?
:03:22. > :03:28.Sitting next to Dale Vince is the founder of Ovo Energy. You did not
:03:29. > :03:37.drop out. You are not a traveller, you are a banker. My story is not
:03:38. > :03:41.the same. I was working in the city. Before that, I ran my own business.
:03:42. > :03:48.So you had no connection particularly to the energy market.
:03:49. > :03:57.How hard was it to set up an energy company? I would not say it was easy
:03:58. > :04:00.but it was not as difficult as a lot of people made out. Up until two
:04:01. > :04:07.months before we signed up our first customer, I was the only employee at
:04:08. > :04:17.Ovo Energy. Now you are just a retailer? Were you a trader in the
:04:18. > :04:22.city? Yes. The complexity in the market is about risk management. If
:04:23. > :04:30.you can do that well, it is possible to start up an independent industry.
:04:31. > :04:40.How many households have you got? 170. It is not about that. We will
:04:41. > :04:44.get into what it is all about later. That's turned to our third guest who
:04:45. > :04:50.is not a challenger in the energy market. Ann Robinson is the Director
:04:51. > :05:00.of consumer policy@uSwitch.com. It is a price in Paris and website. I
:05:01. > :05:05.go to your website, I put in some personal details and you tell me the
:05:06. > :05:10.different price options. You can also ring us, we have a telephone
:05:11. > :05:13.service. All you can send us your bill because a lot of people are not
:05:14. > :05:18.on the Internet. The important thing for people to remember, using a
:05:19. > :05:23.price comparison site, it needs to be accredited. You must make sure it
:05:24. > :05:28.is credited by Ofgem. That way you will get accurate information and it
:05:29. > :05:38.is objective and they can trust it. And you made your money... From the
:05:39. > :05:42.switching bit of it. The big picture is over 90% of people come to our
:05:43. > :05:48.site for information. Just to compare prices and go off and use
:05:49. > :05:53.that information. A very small percentage actually use our website
:05:54. > :06:00.to switch. And switching, the language of this market is changing
:06:01. > :06:04.from one supplier to an other. Take all the hassle out of it of it. It
:06:05. > :06:09.is another service. We have a comparison service and the switching
:06:10. > :06:17.service. How difficult is it to set up a company?
:06:18. > :06:25.I did it in 1995 which is a long time ago. Back then, it was very
:06:26. > :06:30.easy. It was easier than it is today. Back then, we really just
:06:31. > :06:32.filled in a piece of paper and faxed it to Ofgem and then we had a
:06:33. > :06:47.licence. You need some capital? Our
:06:48. > :06:51.first`year turnover was 13,000 pounds. The prospect of forming a
:06:52. > :07:05.green energy company because there was none in the world. Yours is a
:07:06. > :07:14.much more recent company. The money we needed to start the company came
:07:15. > :07:20.from selling my house. You can do it with a man and his dog in an office
:07:21. > :07:29.in Gloucestershire? A man, his wife and a barn. We had to cut a lot of
:07:30. > :07:33.cost and worked very hard to launch. There is a comment I would like to
:07:34. > :07:39.make. Some smaller companies are showing up the big companies. The
:07:40. > :07:43.big six, they are basically generators for that. Engineering
:07:44. > :07:48.companies, they have found it really hard to change the culture. They
:07:49. > :07:54.have the customer service. The focus is the customer with a small
:07:55. > :07:58.start`ups. You are partially right. They were retail companies as well.
:07:59. > :08:04.That other company that inherited its customers never had to care
:08:05. > :08:09.about them. I would imagine this being of securing customers is
:08:10. > :08:15.really the big barrier to entry. The barrier has to be persuading people
:08:16. > :08:22.to switch. How do you do that? For us, our breaking level was 3000
:08:23. > :08:29.customers. We did not need that many customers. We reach that level in
:08:30. > :08:33.two months. It is a big market. We have just over half a percent of the
:08:34. > :08:46.market share and that is a quarter billion. 4000 was going to be
:08:47. > :08:55.pushing it. We have done all right. We keep reinvesting so our breakeven
:08:56. > :08:59.is no longer 3000 because we got more offices and more style. The
:09:00. > :09:04.breakeven keeps going up but we are investing in growth. The numbers are
:09:05. > :09:10.not union but it looks like 2013 could be our maiden profits. By the
:09:11. > :09:16.end of this year, allowing for you to expand and get your, what will be
:09:17. > :09:20.the maximum number of customers you think you could cope with by the end
:09:21. > :09:25.of this year? That I will not save the maximum but we will have doubled
:09:26. > :09:32.in size this year. 2 million, you would not be able to do it. There is
:09:33. > :09:38.no physical reason why not. That your systems are designed for that
:09:39. > :09:43.many customers? The reality is that would make us a five`year old
:09:44. > :09:49.company with a high turnover. We would need to hire 1500 people or
:09:50. > :09:57.thereabouts to manage. You will be the big seven, when she? I do think
:09:58. > :10:02.customers like switching. You said a lot of people compare the prices and
:10:03. > :10:07.then go away. You're white? They think it is not worth it. There was
:10:08. > :10:11.ably ?50 and I do not want the hassle. I do not want to be cut off
:10:12. > :10:16.for a day. Let me tell you why. They lack the confidence. There are still
:10:17. > :10:20.some people who think that the gas and lectures that he gets switched
:10:21. > :10:26.off and on again. They are worried that it is an enormous hassle. There
:10:27. > :10:30.are... There is a big fear factor. Some people who need help most who
:10:31. > :10:37.should be shopping around are the ones who are least likely to switch.
:10:38. > :10:41.Better the devil I know. Everytime there is bad news about an energy
:10:42. > :10:47.company, will say, I will stay where I am. It is a real shame. There are
:10:48. > :10:55.still some people who are worried if they go to a small supplier, maybe
:10:56. > :11:02.they will go bust. It is rubbish. It is unlikely. We offer a greener
:11:03. > :11:09.outcome. It is about green electricity for us. We also push the
:11:10. > :11:16.great customer service ethic. That is very important for us. Do you put
:11:17. > :11:24.a phone number on the website? You actually and the phone? We do. There
:11:25. > :11:29.is no telephone robot, is a human being. The last thing is ethical
:11:30. > :11:34.pricing. Everybody pays the same price, it is not matter how they
:11:35. > :11:42.paid their bills. It is really important. Whether you are a new
:11:43. > :11:47.customer or an old one, we do not have any short`term teaser rates
:11:48. > :11:56.that are sold below cost. We want to build a long`term relationship with
:11:57. > :12:02.customers. We price on a sustainable basis. It is not work like that. If
:12:03. > :12:06.you would want to be the cheapest price than go with someone else who
:12:07. > :12:10.is willing to lose money because they think that you are going to
:12:11. > :12:13.stay with them fulfil years and you will be profitable. That is the big
:12:14. > :12:17.six model. Pricing in this area has been an interesting issue. They
:12:18. > :12:29.tried and cookie. We have this market of people
:12:30. > :12:34.switching all the time and a much larger group of people who have
:12:35. > :12:44.never switched think the whole thing was deregulated. They are the ones
:12:45. > :12:48.who are paying the highest price. I want to focus on the functioning of
:12:49. > :12:53.the market. What lessons are there for challenges? I will start you off
:12:54. > :13:00.with the reflection that the market that has perhaps been most disrupted
:13:01. > :13:04.by challenges in the last 50 years is airlines. When we saw low`cost
:13:05. > :13:10.airlines come in and changed the whole thing completely. And take the
:13:11. > :13:14.marketshare from the big guys. Is that something that you could
:13:15. > :13:23.imagine happening in the energy market? Is that a model that has
:13:24. > :13:29.inspired you? There is no market where price is the important thing.
:13:30. > :13:40.The shift to the cheaper airlines might say otherwise. Service matters
:13:41. > :13:47.to people. It is not just about price. Price is always, I think, the
:13:48. > :13:52.most important thing. When it comes to energy for most people. The
:13:53. > :14:01.manager you pay your bill too, it is the same gas and electricity coming
:14:02. > :14:04.through the powerline. The service does matter and in terms of the
:14:05. > :14:14.business model you spoke of, any company that focuses on price will
:14:15. > :14:21.be out of business. Let's talk about the way that the UK deregulated the
:14:22. > :14:25.energy sector. There is enormous dissatisfaction with it. Is it
:14:26. > :14:29.possible that the market works quite well? We have six big competitors, a
:14:30. > :14:38.bunch of small competitors like yourselves, gentlemen, and we have
:14:39. > :14:43.people who mediate, like you, and. And we have people who switch
:14:44. > :14:46.between the suppliers and I wonder whether that is what you would call
:14:47. > :14:51.a functioning market that is working well? It is very expensive but that
:14:52. > :14:58.could just be that energy is very expensive. It is not obvious, isn't?
:14:59. > :15:05.We do not have a good, functioning market. What is wrong with that? I
:15:06. > :15:13.am not convinced that there is fair pricing. Are you suggesting that the
:15:14. > :15:18.companies collude? I do not think that they need to. There is only six
:15:19. > :15:23.of them with a 90% marketshare. When there is a price rise, one goes
:15:24. > :15:27.first and then others follow. The price rises are very similar.
:15:28. > :15:37.Everything is very similar. You do not need to collude in an oligopoly.
:15:38. > :15:41.Prices going up at the same time can be a a very competitive market or a
:15:42. > :15:46.very uncompetitive market. It is hard to distinguish, isn't it? I was
:15:47. > :15:50.just on a price comparison website before the programme looking at how
:15:51. > :15:59.much I would save if they switched to Ovo Energy. It was not
:16:00. > :16:10.negligible. It would be about ten or 15%. Does that sound right? Yes,
:16:11. > :16:15.that sounds about right. That is about 15%, ?180. You do not have one
:16:16. > :16:19.of the costs but the big companies have because they have obligations
:16:20. > :16:25.to support insulating elderly peoples homes. This year we do. Not
:16:26. > :16:29.yet. When they get the 180 per discount by switching to you, that
:16:30. > :16:37.is without you having to pay the obligation that the big companies
:16:38. > :16:43.have to pay. How much of that ?180 is because they are more expensive?
:16:44. > :16:48.It is about ?55 and this year it should be between 45 and ?50. About
:16:49. > :16:53.a third of that is caused by an obligation. We are talking about
:16:54. > :16:57.?120, attempts and difference in your price to those of the big six.
:16:58. > :17:01.That is when you control for the other costs. What that suggests is,
:17:02. > :17:08.and are not want to defend the big six, a difference between what you
:17:09. > :17:15.would call a good value, ethical company with good customer service,
:17:16. > :17:20.and an incumbent oligopoly rip`off merchant. That is 10%. That is not
:17:21. > :17:25.the difference between fleecing customers and good value. That
:17:26. > :17:34.sounds like normal variation in any market. It sounds like you could be
:17:35. > :17:38.working for Energy UK. 10% is not a rip`off, is it? I would say that the
:17:39. > :17:45.difference between two supermarkets within a mother and would be 10%. I
:17:46. > :17:47.am certain that there is not enough competitive pressure. If you have
:17:48. > :17:56.really strong competitive pressure you also get more efficiency. I am
:17:57. > :17:59.sure that the big six could become more efficient, personally. This is
:18:00. > :18:10.why the smaller companies have an advantage. But the advantages about
:18:11. > :18:13.10%. That is ?100 per year. That is ?3.5 billion per year that the
:18:14. > :18:19.country is paying to energy companies. It is not nothing, I do
:18:20. > :18:25.not want to belittle it. For a hard`pressed family, that is a fair
:18:26. > :18:33.bit of money. That is only on average. If you consider that some
:18:34. > :18:37.customers are loss`making... There are some customers were unsubsidised
:18:38. > :18:40.rates. But the profit margin on those who are not switching are much
:18:41. > :18:50.higher. The dysfunction in the market is this weird thing that it
:18:51. > :18:53.is possible to charge new customers less than existing customers, city
:18:54. > :18:55.can introduce a new tariff to attract new customers and you can
:18:56. > :19:03.fleece the existing ones who never switch. That must be a mistake? It
:19:04. > :19:07.is often called price gouging. It is the biggest obstacle to people being
:19:08. > :19:11.competitive because you to compete with the most competitive offer of
:19:12. > :19:14.the big six, were as most of their customers on something much higher.
:19:15. > :19:27.But I'm not sure that that is not coming to an end. We talked about
:19:28. > :19:30.this, the RMR. The regulator stipulates that energy companies
:19:31. > :19:33.could have for tariffs. I hope price cutting will go away. Then will go
:19:34. > :19:36.away. Then there was either very cheap and very expensive products
:19:37. > :19:41.come together and the average market price was up but the switching price
:19:42. > :19:45.will change. People like and will end up paying quite a lot more than
:19:46. > :19:51.people who never switch will probably pay a bit less. Yes. That
:19:52. > :19:58.would make the market work much better because there have been too
:19:59. > :20:03.many tariffs. There have been many tariffs. I worry that we may be
:20:04. > :20:07.throwing out the baby with the bathwater. They have reduced so far
:20:08. > :20:13.that it may mean that condition stops working properly in this
:20:14. > :20:18.market. We have to wait and see. Experience of the UK, it has been an
:20:19. > :20:22.interesting two decades in running a deregulated market, but lots of
:20:23. > :20:27.other countries had regulated markets. However, they are
:20:28. > :20:33.state`by`state, in the US. They have a big state supplier, as in France.
:20:34. > :20:38.There are competitors but it is basically one in the budget others.
:20:39. > :20:42.Would you recommend this model to the rest of the world? There are
:20:43. > :20:48.countries looking at this market and they are pretty envious. I would.
:20:49. > :20:52.That you have said that the consumers are being ripped off. It
:20:53. > :20:57.is still better than it would have been without a competitive market. I
:20:58. > :21:04.am a believer in competition and competitive markets. It has had some
:21:05. > :21:08.advantages for us. We have ended up at the worst of both possible
:21:09. > :21:16.worlds. We are in between a free market with loads of competition and
:21:17. > :21:19.in a regulated market, the regulator is there to protect customers and
:21:20. > :21:24.they dictate pricing and service levels. We are in a situation where
:21:25. > :21:28.there is an assumption that competition is working and the
:21:29. > :21:33.measure of competition is the number of people who switch. But our core
:21:34. > :21:36.belief is that because some people switch, companies compete and prices
:21:37. > :21:39.come down. That is economic theory but it is not working reality
:21:40. > :21:43.because energy companies are able to segment their market shares and they
:21:44. > :21:49.can say that they will have some prices were some customers and, over
:21:50. > :21:52.here, nothing will change and, guess what? We can literally charge what
:21:53. > :21:58.we like and nobody can prevent this from doing that. We think that most
:21:59. > :22:02.customers will not notice. The fact that you consider that the pricey
:22:03. > :22:04.charge for people to actually shop around for those who don't means
:22:05. > :22:11.that you can rip off half the market. 98% of the market. And you
:22:12. > :22:16.still point to this better be here which is said to be competition.
:22:17. > :22:22.That is the problem, especially for energy, which is compulsory
:22:23. > :22:28.purchase. We have got somewhere. The understanding that there are
:22:29. > :22:29.segmented markets and that one works well and competitively because
:22:30. > :22:36.people shop around that the other doesn't because people do not, that
:22:37. > :22:39.is an important insight. If you are designing the market again, you
:22:40. > :22:44.would want to think about that again. At this point, we will do in
:22:45. > :23:00.the lights on our discussion of energy. My guests were Dale Vince,
:23:01. > :23:02.Founder and CEO of Ecotricity, Stephen Fitzpatrick, Founder and
:23:03. > :23:05.Managing Director of Ovo Energy, and Ann Robinson, Director of Consumer
:23:06. > :23:12.Policy at uSwitch.com. Downloads of our show are available and the
:23:13. > :23:13.details are on our website. We would like to get your e`mail so drop us
:23:14. > :23:38.an e`mail. Hello. A chilly start to Saturday
:23:39. > :23:41.morning. Through the weekend, it will be cold. We have some showers
:23:42. > :23:42.around. Some could be wintry, especially