Each week Ovo’s senior managers assemble at its office, on the upper floors of a 1960s block on a busy road in Notting Hill, west London, and listens to a random sample of calls to its customer services team. Raman Bhatia, the company’s chief executive, knew things had taken a turn for the worse on the week “every single call was a story of customer distress”, he says.
“I remember this elderly lady talked about experiencing debt and the loss of dignity for the first time. She had paid her energy bill, but then she was struggling to feed herself. It was a very visceral moment. At that point we said, ‘We are asking for government support.’ ”
Ovo joined the UK’s other energy suppliers and their customers in lobbying the government, which responded in September with the energy price guarantee (EPG), the support package agreed after much shuffling of feet by Liz Truss. The EPG uses public borrowing to cap the amount paid per unit of energy, limiting the bill of a typical dual-fuel household to around £2,500 a year for their gas and electricity when wholesale prices could push the real cost to more than £4,000. It’s not hard to see why the government was reluctant: the package is expected to cost £43.2bn this year and £26.8bn next year, according to analysis by the Office for Budget Responsibility.
The start of Bhatia’s leadership coincided directly with the onset of the fuel crisis. A town planner by training, he joined Ovo as chief operating officer in January 2020 after five years working on HSBC’s digital banking, then became chief executive on the day Russia invaded Ukraine.
“It was very clear that the invasion would lead to shocks in the fossil-fuel markets. And that’s what happened,” he says. “It was a very challenging time for the sector. The subsequent weaponisation of energy has exacerbated the crisis and caused this massive spike in wholesale prices.”
Is he happy with the EPG? “The original intervention was timely,” he begins, but he says that Ovo was asking for “much more targeted support for customers who need it the most”. The government took a universal approach, however, capping rates for the whole population. As a consequence, in the months since Russia’s invasion of Ukraine caused fuel bills to begin to rise, Ovo and its rivals have found themselves in the unusual position of providing debt advice, with customer service workers referring struggling clients to debt charities such as Step Change, sending out electric blankets to the worst affected and, in some cases, helping them to find out if they’re entitled to extra welfare payments.
Over the summer, as energy prices climbed and speculation over Ofgem’s price cap announcement, which was due in August, became a national sport, the government all but vanished as the two Conservative leadership contests – first to replace Boris Johnson, then to replace Truss – meant the day-to-day business of politics ground to a halt.
Bhatia won’t be drawn on any frustrations he experienced at the time but does admit that “uncertainty in policy, in government, is obviously not good for business and not good for any sector, the energy sector in particular, when customers are facing real poverty challenges”. He adds, however, that since Rishi Sunak became Prime Minister there has been “a very open dialogue” with the government.
That’s not to say energy suppliers themselves were angels. As prices began to climb last year 30 of the smallest suppliers, who had failed to “hedge” – buy energy in advance, went out of business, leaving the remaining companies to absorb the millions of customers who had been cast adrift. Critics pointed to failures by the government, which had encouraged the proliferation of suppliers to foster competition, and the regulator, Ofgem, which had failed to ensure that the new entrants were properly hedged. “I think the [government’s] desire to create switching competition at all costs, in hindsight, was perhaps misplaced,” says Bhatia.
Ovo, which was set up in 2009, completed the £500m takeover of SSE’s retail business in January 2020, becoming the UK’s third-largest energy supplier, with 5m customers, just as many others began to fail. It did not take on any customers from collapsed suppliers, but shortly after it collapsed it did make an offer for Bulb, the company whose viral discount code marketing technique had caused it to balloon to 1.6 million domestic and 12,000 business customers, which collapsed in spectacular style in November 2021, and was nationalised by the government because it was deemed “too big to fail”.
Bhatia says now that “the economics” of acquiring Bulb “didn’t work out for anyone” at the time. In October this year Ovo made a second offer, although Bhatia won’t give details. In November this year it emerged that the cost of the government’s bailout of Bulb is currently at £6.5bn and counting; the sum will eventually be added to all energy customers’ bills.
Bhatia is clearly frustrated by the bailout. “There’s a lot of opacity” around the way it is being run, he says. “The irony is not lost on anyone in the supplier community, because the original failure resulted from not hedging appropriately… and it appears that even after the state’s running it, I don’t think it’s been appropriately hedged.”
He stiffens when I mention a report in October in the Financial Times which suggested that Ofgem had drawn up similar plans for a nationalisation of Ovo, before the EPG was launched. “I am not aware of any such report,” he says. “Ovo is very well set-up for the springtime, well hedged. And that’s all I will say.”
The company has also come under fire for sending customers exorbitant bills in error, some as high as £49,000, which Bhatia puts down to complications integrating SSE customers into its systems. “I’m working with teams to get to the bottom of it,” he says. “We are 80 per cent of the way through.”
Bhatia appears to be focused on the energy crisis, and how the UK could avoid a similar plight next winter. He says – several times – that the UK needs a “vaccination programme-style response”, including a drive to insulate homes, the creation of “a social tariff protecting customers who need help the most”, and targeted support for vulnerable customers. “It would be very helpful if this is done in a co-ordinated fashion across the sector.”
His sentiment seems sincere – but Ovo’s 2021 accounts, filed with Companies House in September, show it swung from a £238m loss in 2020 to a £367m profit in 2021, although Ovo says the 2021 figure appears larger because it includes the company’s “hedge book”, or the financial position it uses to guard against market risk. Ovo’s parent company, Imagination Industries, which owns 64 per cent of Ovo, also paid out £27m in loans to the company’s founder, Stephen Fitzpatrick, last year, which was settled by means of share repurchase.
With numbers like that, it’s tempting to point out that the UK’s energy suppliers – or the ones that survived, anyway – are actually having a very good crisis. Bhatia, however, insists he is focused on the social side of his role. The crisis has been “very sobering”, he says. “At this stage of my career, purpose is everything.”