One of the main themes of my work is that the value of customer retail choice in electricity is not just an increased likelihood of lower prices. Choice is good because it enables customers to go out and look for, and purchase, differentiated products. But, but, but, … the nattering nabob says, electricity is a homogeneous product. No it’s not, because of the wide variety and individuality of the uses to which we put it, across different uses, at different times of day, in different seasons. It is also heterogeneous in the fuels and technologies we use to generate it. The electrons are homogeneous, but the output, the outcome that they deliver to each consumer, is not.
So I think that we advocates for retail choice have done ourselves a big disservice over the past decade by selling “deregulation” as a way to lower retail rates. The logic is simple: if electricity is a homogeneous good, then deregulating (wholesale, as it has happened in the US) electricity markets will induce entry and investment in generation where it’s needed, retirement of old plants where they are not needed, and the resulting increase in efficiency from generating power where it’s cheap and selling it where it’s less cheap will lead to a reduction in retail rates, QED.
But that’s only part of the story, the cost part. By focusing solely on prices to the exclusion of other changes that choice brings and that customers may value, we are arguing for choice with one hand tied behind our back. That’s the hand of consumer utility, preferences, and value. What if customers want a service option for which they would actually pay a higher rate, but it would give them more satisfaction? Such is the case with green power, where you can pay more per kilowatthour to have your power generated entirely (or in shares, at lower prices, for those who can’t afford full assuaging of their consciences) by renewable sources.
I’m sufficiently radical that I consider consumer choice, as the philosophers would have it, an a priori good, because it is one manifestation of individual liberty. But for the consequentialists among you, consumer choice also generates superior outcomes when some potential competition exists. It doesn’t have to be a large number of competitors; what’s more important is the free entry and exit.
All of this is lead-in to an interesting little story I saw earlier this week from the UK. The headline reads “A fifth of UK energy buyers base their decisions on more than just price”, and the punchline is that when electricity customers switch providers, non-price considerations are very important in that decision:
In the electricity market, 21% of customers who switched chose their new supplier partly for non-price reasons, while in the gas sector the figure was 22%. Following price, the most common reason for choosing a supplier was its reputation for good overall customer service. This rebuts the traditional belief that all corporate energy buyers are penny-pinching scrooges who make purchasing decisions exclusively on a price basis. Some are influenced by word of mouth and do respond to the positive images a supplier projects.
Also significant in the decision-making process is the clarity and accuracy of a prospective supplier’s bills. This is understandable given that bill accuracy and bill clarity feature in the most important elements of customer service to both electricity and gas customers alike (in addition to tender response, contract negotiations, response to queries and account manger reliability). Another non-price reason for a particular supplier choice was its financial stability.
Customer service, billing clarity, and metering transparency and service.