Bond trader turned energy boss takes on Britain's "big power"

Wed Oct 30, 2013 12:23pm EDT

* Ovo Energy founder chides Britain's "big six" firms

* Ovo founder wades into political row over prices

* British PM Cameron clashes with Labour over energy

* Ovo says big six are overcharging customers

By Sarah Young and Guy Faulconbridge

LONDON, Oct 30 (Reuters) - Lambasting the country's dominant energy companies for gouging customers, the founder of a small English supplier has emerged as an unlikely hero in a row over soaring power and gas prices that could influence the 2015 election.

Taking on the six companies which control 99 percent of the British energy retail market, Ovo Energy founder Stephen Fitzpatrick turned a parliamentary grilling of energy bosses into a dazzling marketing pitch for his 4-year-old company.

A former corporate bond trader at J.P. Morgan and Societe Generale who decided to set up Ovo in 2009 in exasperation at poor service in the energy sector, Fitzpatrick told lawmakers that if the "big six" had used Ovo's pricing in 2012, customers would have saved 3.7 billion pounds ($5.94 billion).

He cast Ovo as the David of the energy market pitted against Britain's "big six" Goliaths which he said profited by dominating a dysfunctional and badly regulated energy market.

Though he later cautioned that he was not accusing the big six of colluding to fix prices, Fitzpatrick said following the money trail was almost impossible.

"You will always be trying to find out where the money is going. Time and time again, you will have clever, complex and confusing answers, and you will never get to the bottom of it," Fitzpatrick told lawmakers.

"These guys are among the best filibusterers in the business," said Fitzpatrick, whose company as a 0.5 percent market share. "We need more competition."

Fitzpatrick's rhetoric has thrust him into the eye of a political storm over soaring prices after four of Britain's "big six" energy suppliers raised charges for heating homes by more than three times the rate of inflation.

Energy dominated Prime Minister's Questions, a rowdy weekly question and answer session for David Cameron, with the opposition Labour leader Ed Miliband casting Britain's leaders as the defender of the "big six" energy companies.

"He is so on the side of the energy companies... we should call them the big seven - the prime minister and the big six energy companies," Miliband said.

The big six - RWE nPower, Scottish Power, a unit of Spain's Iberdrola, EDF Energy, Centrica , SSE and E.ON - say wholesale energy prices, political meddling, government-imposed levies including green taxes have forced them to increase prices.

When asked for reaction to Fitzpatrick's comments, Centrica and EDF declined to comment while E.ON UK referred to the comments made in Tuesday's hearings. SSE and nPower said they had different trading and pricing strategies to Ovo. Scottish Power could not immediately be reached for comment.

Representatives of the big six were cast as "power cowards" with gas flames under their photographs by Rupert Murdoch's Sun newspaper, Britain's most popular daily newspaper, while "the bloke from Ovo" was lauded for speaking sense.

The Sun encouraged its readers to switch to Bristol-based Ovo: Fitzpatrick "appeared to actually care that customers should get a decent deal." Fitzpatrick declined to be interviewed.

POOR SERVICE?

Cameron, who has pledged to roll back green taxes, said Miliband's proposal to freeze energy bills for 20 months if he wins power in 2015 was a "con" as wholesale gas prices were not controlled by politicians.

Since Margaret Thatcher took on energy monopolies, Britain has gone further than most European Union member states in liberalising its energy market, imposing few pricing constraints.

But for Ovo's Fitzpatrick, the big six, the regulator and at least a generation of British politicians, have failed to build a properly functioning energy market.

"I just couldn't understand why the energy business was so complex and service so poor," he tells prospective employees of his decision to found Ovo as a plucky start-up run from his kitchen table in the English county of Gloucestershire.

"Everyone kept telling me it wouldn't be possible for someone outside of the industry to come in and make energy cheaper, greener and simpler. I'm very pleased to have proved them wrong."

Fitzpatrick, who before Ovo traded credit default swaps, said he did not understand the reasoning behind price rises as wholesale prices were below those of 2011.

So what is his secret?

SIZE MATTERS

Size may be part of the success: Being nimble and accepting a thinner profit margin than the big six's average of between 5 and 7 percent may have helped Ovo, according to Matt Osborne, an analyst at energy consultancy Inenco.

Ovo, whose name is supposed to represent a fresh start in the industry as it comes from the Latin for "from the egg", has a customer base of nearly 150,000 households, while Centrica's British Gas business, the country's biggest gas provider, serves around 12 million homes.

A former trader himself, Fitzgerald may also be more versatile and more ready to take punts while the Goliaths seek to hedge potential losses.

"We employ some very bright people in our trading team and it sounds as though we are managing to beat the professionals here at buying energy at the right price. We are passing those savings on to customers," he told lawmakers.

But Tony Cocker, the chief executive of E.On, told the BBC that some smaller companies had a cost advantage as they were excused from paying some environmental and social levies.

"The biggest problem is the lack of competition," he said, dismissing Miliband's idea of breaking up the generation and retail operations of the big six.

When asked about Fitzpatrick criticism of the energy market, Cameron's spokesman said he wanted more suppliers.

"What the Prime Minister would note in relation to Ovo is that of course we want more suppliers in the market and we want greater competition," Cameron's spokesman said.

"I believe there are eight new suppliers that have entered the market since 2010 and it is good that there are more of these, such as the company you refer to, but we want to go further in terms of competition."

Ovo's website claims that its customers save an average 139 pounds ($220) a year when they switch to Ovo, equivalent to 10 percent off the average British household bill for gas and electricity.

Comparison website uSwitch said that Ovo's energy charges are not the cheapest and comparisons are difficult to make because bills depend on whether you've switched suppliers recently, how much energy you use and where you live.

"I was on Ovo myself until two years ago. I had gone from one of the big six to Ovo and then after reviewing my prices at the end of the year, I went back to one of the big six," uSwitch spokeswoman Ann Robinson said.

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.