Examination of Witnesses (Questions 669-679)
MR KEITH
MUNDAY, MR
PETER BENNELL
AND MR
GRAHAM PAUL
24 JUNE 2008
Q669 Chairman: Gentlemen, welcome to
the last but one evidence session of this Committee's investigation
into energy prices. We are very grateful to you for your very
thorough written submissions. I would like to begin, as I always
do, by asking you to introduce yourselves for the record and as
you introduce yourselves, your name, your responsibility, your
organisation and a brief characterisation of what it does and
who owns you would be very helpful as well, please.
Mr Munday: My name
is Keith Munday and I am the Commercial Director of BizzEnergy.
We are a supplier to small and medium enterprises, started by
venture capitalists in May 2000. We are based in Worcester and
we employ 150 staff. We are very risk averse. We just want to
operate in a very controlled environment. Our principal business
proposition is to be a retailer. We want to compete on customer
service, innovation and cost to serve.
Q670 Chairman: Thank you very much.
I do not want to correct you right at the very beginning but you
are not based in Worcester; you are based on the edge of Worcester
in my constituency, if we can clear that up for the record! Mr
Bennell?
Mr Bennell: Peter Bennell, I am
the Chief Executive of Haven Power. We are a small supplier of
energy, and electricity in particular, to small businesses. We
are part of the Welsh Power Group; 74% owned by Welsh Power, the
balance by management. We specialise in supplying electricity
to small businesses. Our proposition is that we will treat you
as a business rather than as ICI or as a domestic customer. Couple
that with some personal service and competitive pricing.
Mr Paul: Good morning, I am Graham
Paul and I am Sales and Marketing Director of Electricity4Business.
Electricity4Business are a retailer of electricity, meaning that
we do not actually own any generation asset, we just supply electricity
to smaller businesses. Our target market is about 1.4 million
smaller businesses of which we are supplying approximately 40,000.
We are based in Milton Keynes and we have 150 employees.
Q671 Chairman: This is an important
session for us because there is a lot of media attention, understandably,
on the needs of domestic consumers and the big energy users get
their voices heard quite a lot and gave some very impressive evidence
to this Committee a few weeks ago, but this is the opportunity
for the suppliers to the small and medium business sector, largely
anyhow. Can you tell me what the difference is in the market you
supply to the domestic market?
Mr Munday: I do not think any
of us are actually in the domestic market yet although BizzEnergy
is on the edge of going into the domestic market. There are clearly
some differences in the nature of contracts in that the SME market
is principally a fixed-price, fixed-term contract market whereas
domestic customers can leave after 28 days. As regards other differences
in the domestic market, I think there is a view held widely within
the industry that to be a domestic supplier there are very significant
economies of scale. This has led to us having five or six suppliers
each with about five million customers. That is something that
we are not convinced of by any means. When you think about a domestic
supplier, you think about customer service staff. For every dozen
or so customer service staff, you need a supervisor and for every
dozen supervisors you need a manager. It does not appear like
huge economies of scale in operation there. So it must be something
to do with IT or systems. Actually in 1996-97 when the domestic
market was emerging, there were big economies of scale in IT but
as of today, with the advent of new computing systems and new
software, we do not believe that there are material economies
of scale in the domestic market. Clearly you would not set up
to serve one customer but we think there is a plug to be filled
between a few customers and the five million, and therefore we
would like to have the opportunity as a business to challenge
this paradigm that you need five or six players to service the
domestic market; we really do not believe that.
Q672 Chairman: We will look at some
of the obstacles to that later on. Do either of the other two
gentlemen want to add anything to that answer?
Mr Bennell: The only other thing
I would add is that in the small business market there is a huge
volume of business transacted through brokers which you just do
not see in the domestic market at all. They are out to get, on
various bases, from the very reputable to bordering on the disreputable,
the best deal for their customers.
Q673 Chairman: And their interest
is their commission?
Mr Bennell: They get commission
or a fee or they get paid by either the supplier or the customer.
Q674 Chairman: Can I just ask about
Ofgem and regulatory issues. Do you think that the level of regulatory
protection is different in different markets? Do you think Ofgem
is giving enough attention to the small business sector in its
current inquiry?
Mr Munday: Clearly there are differences
between the domestic market and the small business market. There
are some very necessary regulatory protections in the domestic
market for domestic customers to deal with vulnerable customers,
et cetera. The business market is deemed initially to be a buyer
beware market; you have got informed buyers and sellers. What
we are beginning to see emerging in the market is a series of
practices which are certainly making us think twice as to whether
the level of regulatory protection for customers is appropriate
in that market.
Q675 Chairman: We will deal with
those practices in more detail later.
Mr Munday: That is something that
we would encourage the regulator very much to take a much more
proactive stance in addressing.
Q676 Chairman: So in other words,
your view is that Ofgem is probably not giving enough attention
to the needs of the small business sector?
Mr Munday: Absolutely.
Q677 Mr Wright: In terms of Ofgem,
your company Mr Munday, is an example of there not being a powerful
enough regulator in some aspects, certainly in terms of competition.
We talk about switching in the domestic market where there is
a concern but certainly in the business sector it is probably
largely unheard of. What are your concerns there in regard to
Ofgem's capabilities in taking this forward?
Mr Munday: Ofgem in the past have
really focused their attention on the domestic market. They have
paid very little attention to the SMEs. They had hoped that a
competitive market will emerge there. To a certain extent for
a few years it looked like a good market was going to emerge;
unfortunately, it has not. As regards their attention on switching
rates as a measure of competition, that is not one that we believe
is appropriate to use as the sole measure for switching and we
see very few stats available from any source on the nature and
level of switching in the business sector, and that is a big cause
of concern for us.
Q678 Mr Wright: Are there any figures
at all that you are aware of?
Mr Munday: No.
Mr Paul: I think one of the key
indicators of the level of switching is published in one of the
market leader's annual accounts for 2007 which shows that they
renewed 95% of their SME contract customers and that was at the
same time as being rated as the worst supplier for customer service
in research carried out by Datamonitor and energywatch in 2007.
Q679 Mr Wright: Mr Bennell?
Mr Bennell: I think this is very
interesting. The SME market is worth several billion pounds, quite
a bit more this week compared to what it was even two or three
months ago. There is just an amazingly low choice in it. In any
other non-utility market you can think of that is worth that sort
of money, yes, you have got a few big players, yes, you have got
middle-sized players and, yes, you have got a horde of small ones.
They are not present in this market.
| 
