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Utility Week 13th December 2019

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26 | 13TH - 19TH DECEMBER 2019 | UTILITY WEEK Operations & Assets Event Roundtable: Energy Retail Remastered T he UK energy retail market is a harsh environment for all players. Scale is no guarantee of profitability or pro- tection – as demonstrated all too clearly in the drawn out demise of the beleaguered Npower brand and the massive job losses that will accompany its absorption into for- mer big six rival, Eon. At the other end of the spectrum the mar- ket also holds some particular hazards for the many smaller players that have entered with aspirations to disrupt and bring new value or better service to consumers. Since the start of 2018, 15 challenger brands have collapsed, many of them blam- ing unexpected wholesale market variations, unmanageable compliance costs or, more recently, the impact of the retail price cap. A recent industry meeting, held under Chatham House rules and hosted by Utility Week in association with so‡ware provider AMT-Sybex, sought to dig further into these small supplier stories and gain perspectives from those still standing, in order to under- stand more clearly the operational and regu- latory issues putting their businesses at risk. The trouble with Ofgem The bracingly honest and open debate exposed widespread frustration with Ofgem for its inflexible attitude towards interact- ing with smaller suppliers. While all partici- pants agreed that the regulator does not exist to help challengers keep afloat, there were numerous stories of apparently obstructive or opaque behaviours from the regulator that had caused headaches for smaller brands. One supplier, for instance, explained how it had informed Ofgem of its intention to perform a major system switchover in a given week, only to find a day before the pro- ject was due to commence that Ofgem had sent a communication to more than 30,000 consumers telling them that the company in question was offering the cheapest tariff available on the market. The system switchover had to be aban- doned and all resources turned to manning a creaking contact centre because of the sudden influx of switch requests that the supplier was not equipped to handle. It sub- sequently went to the wall. Unsurprisingly, given recent rows between Ofgem and some smaller players about payment arrangements for the Renew- ables Obligation, this issue also surfaced as a point of dissatisfaction. Participants complained of inconsistency and opaque messaging from the regulator around its will- ingness to negotiate special payment terms with suppliers. One participant who previously worked at a recently failed supplier and is still active in the market, said that a refusal from the regu- lator to consider a proposed payment plan to cover RO commitments had undermined a financing agreement that would have kept the company afloat. Another participant claimed the regulator had reneged on an agreed payment plan, causing very public issues for the firm. It should be acknowledged that Ofgem has recently written to the Department for Business, Energy and Industrial Strategy (BEIS) to request monthly payment options for RO commitments, but the wounds are clearly still raw for suppliers that have suffered under current arrangements. Not all of the debate at this event was dominated by regulator-bashing, however. Other market challenges also emerged as common pain points for smaller suppliers – notably in three areas. Sales and customer fraud Several supplier representatives at this debate – especially those supporting field sales operations – talked about the chal- lenges they have faced trying to identify and root out fraudulent sales agents. One supplier said they see around a 30 per cent turnover of sales agents due the sackings for fraud. Another representative who previously worked at a now-defunct challenger brand said that around 10 per cent of field sales were found to be fraudu- lent or miss-sold. "Ultimately, that was enough to sink a supplier," they said. Suppliers facing challenges in this area are trying hard to develop more robust ways of identifying fraud, but said this is hard and can involve margin-eroding demands for investment and resources. And it's not just dodgy sales staff that are causing trouble. Dishonest customers too are having a disproportionate impact on the profitability of challenger brands, according to our debate participants. Scams propa- gated in internet chatrooms are leading to significant collections challenges for firms that cannot support significant bad debt. A common swindle cited by our group was where customers with bad credit his- tories would use their children's credit information when signing up to a supplier. Another was supplier-hopping, whereby a customer might switch every 20 days in order to avoid ever building up a level of debt that was worth pursuing for a busy supplier. Switching management It was unanimously agreed that the regula- tor's push towards faster switching will exac- erbate the above issues with customer fraud and deceit. It's a worry that overlays ongoing concerns about inefficiency and ineffective- ness in current industry switching arrange- ments and associated data flows. Utility Week surveyed debate guests ahead of the event on the most troublesome day-to-day issues they faced and found that frustrations with the change of supplier pro- cess were felt across the board. During discussion this finding was explored further, exposing pent-up outrage at "unjust" erroneous transfer fees and poor quality data in central systems. Missing opening reads, wrong address information and smart metering failures were the most disruptive issues cited in relation to switch- ing management today. Meanwhile, the cost and resources required to develop "adaptors" for inter- nal systems so they can interface with central systems undergoing major change programmes were identified as a real worry for some. Smart metering The national smart meter rollout also raised the hackles of our participants. The rollout was roundly denounced as a "shambles" that had resulted in real difficulties for all energy retailers and some specific problems for smaller firms. While the prospect of half-hourly metering Challenging times for challengers Fraudulent sales staff, dodgy customers and broken smart metering systems – energy supply can be a minefield for the unwary.

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