Today the BBC reported that British Gas profits have increased by 31%, this got me thinking about an idea I've often considered but don't have the expertise to pursue.
A Co-Operative Energy Company.
A Brief History (of energy!)
In 1986, Margaret Thatcher’s Conservative government privatised the gas supply in the UK. In 1989, the same happened to electricity.
The idea sold to the country at the time was that privatisation and competition would allow for a better and cheaper customer experience. It also meant you could buy a piece of the new industry and make some money!
However the nature of private business is that it needs to make money to keep its shareholders happy. If profits fall, so do dividends and share prices. The once nationalised energy supplies were now business’s and they were out to make as much as they could for their shareholders.When you look at it in simple terms it seems unfair:
Old System – Gas and Electricity are owned and supplied by the nation, for the good of everyone.
New System – Private companies now supply our energy and must make profit to please their stake holders.
The Third Option
There are many who will argue that privatising the energy sector was for the best and in reality re-nationalising would be incredibly difficult to do.
But there is another option.
An energy company owned by its staff & customers would create a company that was for the good of all again and not all about shareholders & profit.
It could be structured as follows:
45% owned by the employees of the business (similair to the John Lewis model).
45% owned by current customers of the business.
10% owned by investors & leaders.
Lets look at each group of stakeholders individually;
Each employee of the John Lewis Partnership is a member of the employee owned trust. They are paid bonuses on the performance of the company which often amounts to a significant addition to their salary.
If employees owned a stake in the new energy company, there would be a motivation from day one to provide an efficient and effective service. Something many of the ‘big six’ energy companies struggle to achieve.
The dividend would be paid to employees as a percentage of their salary.
Allowing customers to own a segment of the business will bring their energy costs down. Essentially 45% of everything the company makes will go back to the customers.
A dividend based on the customers consumption would be paid out.
Investors & Leaders
Setting up an energy company is no mean feat. It needs people who are dedicated, it also needs investment.
Setting aside 10% of the company for private ownership would give the leaders a motivation to set the business up and investors something to own.
How Payments Would Work
Lets look at a very simplistic scenario:
The new business made £200 million over a financial year after tax.
It was decided that £100 million would be retained for investment into the company and £100 million would be paid in dividend.
- 45% of this (£45 million) would go to the staff and would be divided proportionately to their earnings. This may amount to a 5-10% bonus for employees.
- A further 45% would go to customers. This would be credited to their account.
- 10% would go to those who got the company off the ground.
This money would be paid out at the end of every financial year.
The Benefit of Starting From Scratch
Starting as a new business would allow systems to be put in place that are not possible with long established companies. New technology would mean billing and customer services could be much more efficient. There would not be the trouble of trying to fit new technology into a much older system.
Again the rules of the business can be different – a constitution from the start could be put in place to guarantee the business will always develop and serve the stake holders properly. A few possible things that could go into the constitution are:
- The company will always aim to source its energy from British sources.
- The company will invest 50% of its profit into research, development and production of clean, efficient energy.
- The private shareholders must offer sale of their shares to the trust companies if they wish to move on.
- The company would commit to getting the best possible prices on energy for there customers.
Can it be Done?
A business like this would no doubt attract customers. So many people in the UK are fed up seeing their energy bills go up and having to deal with such poor customer service.
However, in order to get an idea like this off the ground, it needs industry experts and investment. It is perhaps this that would form the stumbling block to progress.
Finding the right people to set the business up and form the trusts could be difficult. But it has been done before so could be done again.
UPDATE 09 March 2016
Since writing this, Victricty has been in touch to tell me about Hepburn Wind an energy co-op in Victoria, Australia. They’ve set up a really interesting co operative. I’m looking forward to seeing this idea develop and grow.
- Statistics on average spends of consumers & total industry worth.
- Graphics to demonstrate structure of the company