Stephen Fitzpatrick’s first job was a short stint trading derivatives pegged to Libor, the interbank lending rate, in the City of London in 2003. As a junior, he laughs, he was “not able to move any global benchmarks”, referring to the scandal that has engulfed the market since.
A decade later Mr Fitzpatrick finds himself again on the fringe of what many believe is another scandal: the UK’s relentlessly rising household energy bills. This time he is an upstart challenger to those under scrutiny.
The 36-year-old is founder and managing director of Ovo Energy, a tiny independent energy supplier trying to prise some business away from the “big six” providers, who control more than 95 per cent of the UK’s household energy supply. With a turnover of £200m, it may make a small profit this year. It has 150,000 customers and about 300 employees compared with the millions of customers and tens of thousands of staff of the big six.
Few had heard of Ovo before Mr Fitzpatrick’s recent televised lambasting of the bosses of his bigger rivals, as they all appeared before a group of parliamentarians. He covered everything from bad customer service to stalling tactics against reform. “These guys are among the best filibusters in the business,” he told the lawmakers.
Speaking in a London restaurant, wearing entrepreneur-regulation denim and fresh-faced despite broken nights following the recent arrival of his second child, he says the publicity is “much better than being ignored”, but insists he is a “reluctant frontman”. However, he says, “it’s natural that people are looking for a real person to hear the message from”.
The chutzpah shown at the energy select committee hearing brought comparisons with Michael O’Leary, the feisty chief executive of low-cost airline Ryanair. Mr Fitzpatrick dislikes the comparison: “He is famous for saying after all these years of needlessly pissing off their customers they are going to have to change it,” referring to an about-turn by Ryanair on customer service. Ovo’s model, he says, is not about running a business at the lowest possible cost but about offering customers “the best possible value for money”.
His attendance at the hearing was a good opportunity to raise Ovo’s profile, he says. But more important than that, British consumers need someone in their corner, especially with Ofgem, the industry regulator, “not doing a particularly good job”. The watchdog should take “a more proactive look at where the customer can benefit”, he says, chutzpah on display again.
Critics – in private – accuse Mr Fitzpatrick of turning his appearance in front of MPs into an advert. But his plans to create an upstart challenger in energy supply and take on the poor service in the sector were not conceived overnight. While working in the City, he had looked for a market with high barriers to entry, “a big industry” that had few new entrants despite deregulation.
He had always wanted to start his own company. After a degree in business and finance at Edinburgh university, he set up a property website and a free-sheet advertising property rentals before Lloyds TSB took him on to trade Libor. After six months he moved to Société Générale, then to JPMorgan as a bond trader.
Despite starting to make a decent living he decided to leave. His wife, whom he has known since he was 16, wanted to live in the countryside. “I thought, if I can stick to banking for five years, earn some money, then I could start my own business.” He was never going to find it hard to leave the trader lifestyle behind. While some of his colleagues splashed out on Maseratis and Ferraris, Mr Fitzpatrick bought a used Volkswagen Golf on eBay. Having left a few months before Lehman Brothers collapsed, he watched the news on Bloomberg TV with his wife while travelling in Botswana. “It was surreal.”
Back in rural Gloucestershire, plans for Ovo took shape. Before leaving his City job Mr Fitzpatrick had visited the offices of Elexon, the company responsible for overseeing the arrangements that enable selling and trading of generated electricity in England and Wales, to test his business plan. He had also visited Ofgem to learn about the licensing conditions. Getting regulatory approval was laborious and expensive. Nine months passed before Ovo got a licence. In what he describes as “an eye-opener”, he had to buy £2m worth of electricity in advance but then realised Ovo did not have the right licence to receive it. “It took a lot of fixing,” he sighs.
Even with its high upfront costs, Ovo was self-funded with savings and proceeds from selling the couple’s London home. They own the business outright.
Ovo was officially launched in September 2009. The strategy, he says, was to be sure the foundations were properly in place so the start-up could cope with fast growth. The company has upgraded its IT systems and hired new senior managers. It is assembling a board of advisers and bringing in an outside investor to take a 15-20 per cent stake. His own role at Ovo is likely to change, he hints, noting that “pretty soon” his founder skills will not be right for managing an increasingly complicated business. Energy will remain his focus, though, including how to generate more renewable energy at a lower price and how to increase energy efficiency. Any new business “might be a subsidiary, might not”; he will not divulge more.
In his role of challenger, Mr Fitzpatrick says the root of the problem in domestic energy supply is that the big six rely heavily on customers that never switch: many have been with the same supplier since privatisation in the mid-1980s. “They are maximising their profits, they charge the most to people they don’t think will switch.” He is careful not to accuse the big companies of being a cartel but says they are “all the same”.
Most of the UK’s largest energy suppliers announced rises in household bills ahead of winter. After being widely criticised, they have now said they will reduce the rises after the government promised changes to some of its green energy schemes that it said could cut annual household bills by £50.
Ovo had already announced an offer to help customers cut their monthly bills. They pay at the start of the month for what they expect to use; now they will be able to reduce their monthly direct debit themselves if they anticipate using less than usual. If the customer is wrong, the company takes the difference the next month.
Combative and quick-witted, Mr Fitzpatrick goes on the attack at any suggestion that smaller suppliers have lower costs because they do not have to pay any of the social or green levies enforced by the government to subsidise low-income households and to support the UK’s nascent renewables industry. “Oh, stop it. Is this Phil Bentley’s question? Where is he?” he jokes, looking around as if to spot the former head of British Gas lurking in the restaurant.
Then he’s off again, in his element, relishing his battle to challenge the status quo.
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