Broken markets

The electricity market place has sustained a bit of a collapse. I have first hand experience of two of the suppliers which have recently gone bust.

I signed up to lookaftermybills, a super-comparison web site which finds the cheapest electricity supplier for you, makes the switch for you from your current supplier without you having to raise a finger and, every subsequent year, repeats the process. A great idea. In theory. My problem was that, after the first year, the switch from Utility Point to Green Energy, the companies identified by the site, did not go smoothly. In fact it did not actually happen at all. And involved me doing all the communication. In the end I gave up on the process and renewed my contract with Utility Point.

Subsequently there were numerous hikes of the electricity price until I received the news that Utility Point had gone bust. Unexpected but not surprised. Yesterday Green Energy followed suit.

The regulator Ofgem has a protocol in place which deals with situations such as this and I am now back with French-owned EDF, which was my supplier before I got involved with lookaftermybills. Full circle. But, if Ofgem anticipated this happening (which they must have done to have established the scheme) why did they allow it happen?

These companies - there were at one point 99 of them, which the government defines as "a competitive market" - don't actually make any electricity, they just trade in it as a commodity: buy wholesale, sell retail, pocket the margin. Like all such markets, prices are volatile and if wholesale prices go up steeply, as gas prices have done recently (these companies typically supply gas and electricity) then a company can be in trouble. A "competitive market" essentially means a race to the bottom in prices to the customer, to get your share of the market (28 million domestic customers), because price is the only relevant determinant for the customer. Electricity is not like pizza, where quality matters as well as price. It's inevitable that this will lead to company failures.

I know full well the arguments against state control of utilities, because I grew up at a time when "nationalised" became a dirty word but privatisation of an essential national function always seemed illogical to me and it's now unarguable that the consequences can be negative. It seems likely that the 99 companies will in time be reduced to a small number, thus rolling back the whole process.

I'm happy to be back with EDF. I don't like them, don't dislike them, but if it stops me having to think about "what next?" and perhaps costs me a few pounds a month more than I could find elsewhere, I'll live with that. Cheapest is not always best.