Energy is making headlines. This month, SSE – Scottish and Southern Energy – announced its half year profits for the period ending September rose by 38 per cent against the same period last year, to £398 million. Despite this, SSE increased its domestic energy prices by an average nine per cent from October.
In contrast, one of the newest and smaller suppliers has cut its electricity prices — bringing them down by two per cent from 21 December. This is despite the fact that this supplier — Co-operative Energy — was already more than competitive in its pricing. It claims that it will now be £88 cheaper for an average standard tariff where the customer pays by online direct debit and £178 cheaper for someone paying quarterly on credit, compared with the Big Six energy suppliers.
The price cut was immediately praised by consumer champion Which?, whose executive director, Richard Lloyd, said: “Rising energy prices are one of consumers’ top concerns, so this is welcome news from Co-operative Energy at a time when millions of household budgets are squeezed. Customers being hit hard by big suppliers’ price rises should now ask why it is that Co-operative Energy can buck the trend.”
An endorsement by Which? is welcome, but unsurprising. In May, Co-operative Energy beat all its major competitors in bidding for a mass switching exercise hosted by Which?. As a result of offering the best fixed price tariff, 22,000 consumers switched to Co-operative Energy. In fact, more wanted to move over — 280,000 consumers had registered for the exercise — but were told that only a limited number could do so.
The restricting factor, Nigel Mason of Co-operative Energy told the News, was that it had necessarily entered into supply contracts to deliver against the fixed price that it had bid at. It turned out that the number of consumers seeking to switch far exceeded the size of contract that had been pre-arranged.
“In May this year we were a smaller business, even though it is only six months ago,” explains Mr Mason. “That was a fixed price tariff. We entered an auction and promised to offer a fixed price. We had only bought a certain capacity for that auction.” But the issue was not, stresses Mr Mason, about the co-op’s operational capacity. “Most of our business is online and there is no capacity issue,” he says. “There was a sub-text, which was that this was the first time we had taken on 22,000 people on one day! We had to ensure we did that well.”
And, insists Mr Mason, the exercise in fact went without problems. “I think it went very well indeed,” he says. “We did an online survey of those 22,000 and got a 48 per cent response rate. I have never known a response rate on that level. Which? subscribers are really active consumers. Most respondents said it was too early to tell, but most who did give an answer were overwhelmingly positive.”
Since then, Co-op Energy has grown significantly larger and now has a customer base of 65,000 accounts. The business offers energy across all parts of Great Britain, though not in Northern Ireland — which has a different regulatory environment. Readers will be pleased to learn that the high rate of growth is directly related to the business’s co-operative trading model.
It now feels rather surprising that Co-operative Energy is a mere 18 months old — but with the amount of positive publicity in the national media it is unsurprising that the business is growing quickly. Progress, says Mr Mason, is “very good” and the co-op is signing up large numbers of new customers every day.
“Autumn is always busy for energy suppliers, especially for us because energy is in the news,” says Mr Mason. “It spurs people into action. The challenge for this industry is how inactive most people are. There is great inertia.
“The plan is total growth,” he adds. “I always thought that potentially we could be as big in energy as the bank is in banking. The co-op model makes perfect sense in energy — ownership by customers is the fairest way of delivering energy. It is the Rochdale Pioneers’ philosophy.”
Competitors offer so many different price tariffs and contract arrangements that this leaves consumers confused and increases trading costs for them, suggests Mr Mason. “We have an incredibly uncluttered and simple business model. Others [competitors] are sinking under the weight of their complexity. We are growing very quickly, mostly online and there is potential point [of competitive advantage] there.
“We don’t spend much on marketing. Co-op activists say why don’t we shout about ourselves from the rooftops, but I’m afraid that costs money.”
Given the context in which corporates have grown on the back of their advertising spend, not the quality of service or the cost of their products, no one could reasonably complain about Co-operative Energy going back to the Movement’s principles. Long may they continue to do so.