Labour Party leader Ed Miliband's laughably naïve announcement that, if elected, he would freeze energy prices for twenty months from the date of his election makes you wonder if these seat-of-the-pants, counter-punch 'policies' have been properly considered or professionally researched and analysed.
Sometimes, in these matters, one can benefit from studying the dynamics of similar businesses which face similar business realities.
Oil is a commodity just like gas. Very like gas, in fact.
We need oil to run our cars. In the UK, we call it petrol. In the USA, they call it gas. See?
How do the oil companies sell us petrol (and diesel) for our cars?
And how do we, as consumers, behave?
We drive along and see from the dial that we need more petrol. As we spy the various 'petrol stations' owned by various oil company brands, we choose where to stop and fill up our tanks at the rate the petrol station has on display.
And we can see that, in many ways the petrol market is competition at its best:
- the oil companies are dealing in a global 'commodity'
- 'upstream' oil prices go up and down with global markets
- 'downstream' prices are fiercely competitive
- consumers are ruthless
- consumer ruthlessness forces oil companies to 'add value' in different ways
- this makes purchasing petrol a much more pleasant experience than it used to be.
Let's return to the household energy market.
Have you ever 'switched'?
I switched last year and, I can tell you, whatever the politicians and energy companies say about how easy it is and how many attractive tariffs there are, it is not true. You are being conned.
Take it from me, the 'switch' experience is complex, confusing and distressing.
Here are various measures which need to happen in the household energy market, for all of which I will compare the customer experience to that of filling your car with petrol:
1. More consumer choice
As you will see below, consumers have much more choice in the purchase of petrol for their car than gas for their home.
2. Modernise the equipment
The meters in the household energy business are totally inappropriate in the modern era. In fact they are a disgrace. When I put gas in my car, I can see exactly how much I am putting in and exactly how much I am paying. Why not for the gas in my home?
Antiquated equipment tucked away in basements makes it difficult for customers to monitor how much energy they are using and how much they are paying for it as they go.
'Smart meters' have been invented. Why haven't I got one?
3. No more bundling of products
Why do energy companies encourage me to bundle gas and electricity from one supplier And why does my new supplier, have a bundle which includes phone and broadband?
Is this in my best interests? The hell it is.
Do the petrol stations bundle their products? Do they tempt you with offers of cheaper petrol in you pre-buy your engine oil at the same time?
No they don't.
Nor should they.
4. No more fixed payments
When you pull in to a petrol station to fuel your car, is there a system where you are trapped into going back to that place? Of course not. The next time you fuel your car you can go wherever you like. The same should apply to household energy.
Annual deals are a con. They are a way for the suppliers to make their product more complex and confuse their customers. They are not in the best interests of the consumer.
5. More transparency
As I drive down the road, the prices charged by the petrol companies are broadcast loud and clear on a large digital display on the roadside and, as I continue my journey, I can compare the price offered by one petrol station to that offered by the next.
Why can't my household energy supply be like this?
6. More integrity
At a petrol station, you help yourself to petrol, you pay and then you leave. You have the power to go where you like next time. In the household energy market, the power is in the hands of the supplier not the customer.
As privatised businesses, owned by shareholders, energy companies have a duty to maximise their profits and they use very trick in the book to do so.
It should be as easy for you to cut them off as it is for them to cut you off.
This is very important.
7. Easier to switch
Yes, there are costs attached to the modernisation programme I have proposed. And the energy companies will not like it. But surely transparency it is a price they must pay for the licence to provide such important public services?
Believe me, if the proposals I have outlined above were adopted, energy prices would come down.
Mr Miliband may not realise this but one benefit of privatising businesses is that used to be nationalised is that they have to operate in a competitive world.
In any market, competitive forces are not restricted to just one sector. Once consumers get used to behaving in a certain way, they will demand the same level of service across every aspect of their lives.
Whenever the times comes that buying gas and electricity for your home is easy as it is to buy petrol for your car prices will come down, customers will be more satisfied.
And the world will be a better place.