Pressure heating up for energy companies Article icon


Two polls over five days in November confirm that Britain's six big energy companies are the new pariahs of the business world. Bankers can rest easy for a time as the tumbrils have rolled on to another sector.

Which?, the consumer rights group, says that energy is the most distrusted of all consumer sectors, lower than banking, car salesmen and train operators.

And a poll by ITV suggests that energy companies are hated more than banks and politicians, with seven out of ten respondents saying they view energy groups unfavourably.

Four out of the six leading energy players have now announced price rises of between eight and ten per cent, just as cash-strapped UK consumers approach the long tunnel of a Northern winter. Each company has tried to explain why it is raising prices, pointing to rising wholesale costs, rising transmission costs, high green taxes and obligations imposed by the last and present Government.

They have talked of the need to keep on investing in order to maintain the energy infrastructure and 'keep the lights on' and even suggested that green taxes should be put on to general taxation, rather than energy bills which hit the poor hardest.

But the public does not accept the argument. It sees excessive profits; substantial dividend payouts - to shareholders or parent companies; soaring executive pay and bonuses; poor customer service and a lack of transparency.

It matters not that electricity and gas bills fell for almost 20 straight years from 1986, before they began rising again in 2005.

Political freeze

Public anger has sharpened towards energy companies in the last six weeks since Ed Miliband, the leader of the opposition, said that if elected in 2015 he would force a price freeze on the industry for 20 months, while steps are taken to put the market back on a proper footing.

It was against this backdrop that the industry regulator hosted a conference on Guy Fawkes Day entitled Re-engaging consumers in the energy market.

The date was picked months earlier, but the timing could hardly have been more apt. Just days earlier, energy chiefs had appeared before the Energy and Climate Change Select Committee of MPs, seemingly complacent and unmoved by the real hardship that ordinary people are feeling after years of falling real incomes.

'Consumers are frustrated and angry. Energy prices have doubled over the last ten years, during a time when household incomes are being squeezed. It's not surprising that consumers come to the conclusion that the price rises are unfair and unjustified,' Andrew Wright, acting chief executive of Ofgem, told the conference.

Richard Lloyd, director of Which?, which is calling on the Chancellor George Osborne to take steps to cut bills in next month's Autumn Statement, says: 'We have now got a crisis of affordability of energy like we have never seen before.' Which? says that eight in ten people are worried about energy prices, the highest level since October last year.

Poor timing

Philip Gawith, managing partner at StockWell, the strategic communications and reputation management advisor, says: 'When Ed Miliband focused in on the energy companies that took the pressure to a whole new level. To then come and raise prices like that was, as they surely knew, asking for trouble. They do not appear to have been very mindful of their poor reputation going back quite a few years.'

The companies were not astute enough to see how the runes were changing and it is too late to change things when sitting in front of the select committee, Gawith adds.

Dr Stuart Roper, who lectures on reputation management at Manchester Business School, says that the energy companies are feeling the brunt of a problem that has hit almost all big businesses.

'Trust in big business is at an all time low after the banking crisis and then the public is coping with a decline in the standard of living after three to four years of tiny or no pay rises,' Roper says. 'The energy companies have shown no sensitivity in trying to put up prices.'

He argues that the companies are widely seen as profiteering and they use the language of the market when they are actually monopolies.

Roper suggests the big six have 'been putting too much emphasis on shareholders, rather than on keeping prices down for the more vulnerable members of society'.

Lessons from supermarkets

Some companies do manage to raise prices without causing a storm. For example, supermarkets have managed to get consumers to pay more for fruit, vegetables, bread, meat and milk without a major backlash while airline fares have steadily increased.

Supermarkets framed price increases in terms of making sure that farmers get a fair deal. But the problem with energy price increases is that only the energy firms seem to benefit.

Harry Wallop, a consumer journalist for The Daily Telegraph, who looked into energy price rises for Channel 4's Dispatches, says that supermarkets were investigated on competition grounds constantly for more than a decade but weathered that.

Wallop says: 'Asda carved out a role as the people's champion, even as prices were rising. They made clear that they were on the consumer's side and their cost of living survey cemented their position as a consumer champion.'

Tony Cocker, chief executive of E.ON, has written to Prime Minister David Cameron inviting a Competition Commission enquiry, and Vincent de Rivaz, chief executive of EDF Energy, has said he would welcome one. But Centrica, parent of British Gas, has rejected the suggestion.

The facelessness of the energy companies does not help. So it added insult to injury when Cocker was the only chief executive from the big six to appear before the select committee. Most companies sent a senior director along - earning yet more vilification in the tabloids.

Wallop says: 'Don't act as if a Select Committee is an inconvenience to your business. Take them seriously, send the most important people.'

Days after his Select Committee non-appearance, Sam Laidlaw, chief executive of Centrica, the British Gas parent company, told a CBI audience that he would give up his bonus for 2013.

Simon English, City editor of The Sun, described it an empty gesture: 'Giving his bonus to charity is supposed to be humble. It is anything but. These guys have no idea how they look.'

Paul Massara, chief executive of npower, also criticised the move as a 'gimmick', adding he would not give up his £150,000 bonus this year if he achieved his targets.

One City reputation expert agreed that Laidlaw's gesture would not earn him much credit, given that he earned £2.35 million last year. 'It's a drop in the ocean for him - it just underlines the massive disconnect between these chief executives and ordinary people,' he explains.

No sector champion

Another reason that the tide of opprobrium against the energy companies has seemed relentless is that there is no one speaking up for the energy companies - not even the City commentators who understand how these companies are regulated and the amount of dividends they pay.

One commentator in The Times, Philip Collins, who used to be a utilities analyst, shed light on the gulf between energy companies and the politicians, who could eventually change their business landscape.

'The sheer political incompetence on display by the nearly top bods of E.ON, SSE, Ovo Energy and npower showed what can happen when business people step over the border into the unfamiliar territory of politics. A case that sounds reasonable in your own tongue does not translate into the political vernacular,' he wrote. 'They are not as guilty as they are charged. It doesn't matter.

Politicians always accuse the press of hunting in a pack but they do it themselves and, for all the sound and fury of the row between Labour and the Tories, they are doing it now.'

His advice to the big six was succinct: they should do everything they can to cut prices and hope that the political caravan moves on quickly.

Looking at how the anger arose online, Joel Windels, marketing manager at Brandwatch says: 'Social media is a great amplifier of opinion so take an emotive subject such as energy prices, add in the stirring by the media and throw it online for everyone to see and comment on, and you can see how the situation has reached this point.'

Gawith adds: 'Politicians are making emotional points. It's very hard to respond to that with a rational argument.'

He believes it will be open season on the energy providers until after the next election. 'As long as Ed Miliband thinks it is politically advantageous [to kick them] - they will find themselves in an uncomfortable place.'

Explaining their broader role

Andrew Grant, founder of Tulchan, the financial PR agency which used to advise Scottish Power, agrees that energy companies will continue to be the whipping boy for some time to come. 'The companies do suffer from complexity. If you are on the back foot, trying to make the complex simple is very difficult,' he explains.

Grant suggests that energy companies need to begin explaining what else they do that gives value - community work, work with vulnerable groups, restoring power quickly when storms bring down wires. 'They need to put that in front of people, instead of hoping they'll find it on their website. You can also see that SSE is trying to give a different response by talking about putting green investment on to general taxation,' he says.

But Roper believes the sector's reputation will not improve until energy companies can start to show that they do have strong core values. 'You don't get a reputation for what you say you are going to do, but what you actually do,' he says.

Energy companies have attempted to connect with communities through sports sponsorship. E.ON sponsors the FA Cup while npower has sponsored test match cricket in the past. 'There can be a lot of narcissism in sponsorship,' warns Roper. 'If you're going to build up your brand you'd be better off trying to develop trust from ground roots upwards, through community initiatives.'

There is no easy fix to the reputational problems faced by energy companies. And most commentators believe that political intervention appears inevitable, which may irredeemably change the energy marketplace.

Grant warns that the companies need to think about how they will be perceived in three years' time. 'They need to start talking in a completely different way because whatever they have been doing for the last five years hasn't worked,' he concludes.