Utility Week

UTILITY WEEK | 13TH - 19TH MARCH 2020 | 19 Operations & Assets The £1 billion hit that could hurt the most vulnerable The introduction of the price cap is making it unsustainable for the large energy sup- pliers to serve their large numbers of vulnerable customers and remain profitable, Chris Thewlis, chief operating officer of Npower, told the conference. "Npower has been taken on by Eon, and 4,500 people will lose their jobs as a result," said Thewlis [pictured], referring to the announcement in November 2019 that Eon is to absorb Npower's operation into its own. "This is directly related to a price cap intervention that had these unintended consequences that will ultimately impact those most vulnerable, without some sort of modification." He said about 40 per cent of Npower's customer base is now defined as having some sort of vulnerability. "That was about 15 per cent ten years ago". According to Thewlis, the affordability issue and a change in definition by Ofgem, which he said was a good thing, have added to the numbers. "Another unintended consequence of the price cap, which was designed to bring the price down for these kinds of customers, is to bring the price down for a whole bunch of people, includ- ing people who didn't necessarily need it, and it's taken nearly £1 billion out of the pockets of the big six this year. "So, it's pretty much made every single big six supplier unprofitable. And if no one's making any money, the services that are being provided will start to be reduced naturally because of cost pressures." Npower's CEO said a two-speed market was operating in energy. "You've got the middle class, relatively well-off people who are switching like crazy, getting really good deals because they've got good credit and they're able to switch. What you're le" with in the legacy suppliers is an ever-increasing percentage of vulnerable customers, because by definition they don't tend to switch and their credit isn't always as good." Thewlis cited independent analysis undertaken by Bfy Consulting, which showed that customers with a vulnerable indicator are £21 a year more expensive to serve. He said that in 2019 Eon had received 1.5 million contacts from customers with a vulnera- bility. "One in three customers are in debt struggling to pay, and one in six customers have multiple vulnerabilities." Thewlis said Npower had worked with Ofgem to put in place a number of meas- ures to protect and help assist people in difficult situations, particularly vulnerable customers and those in debt. He went on to outline a number of initiatives that Npower has instigated as part of proactive customer account management, including payment methods and training solutions. "We've empowered our people to do all sorts of extra things. I do call-listening regularly with my teams. We offer energy advice on how people can reduce their energy and lower their bill; we have energy funds that are accessible. "I would argue that I don't see most of the small suppliers doing these things; they're just not built that way. If we see one or two more of the big six go, this will increasingly become something that other suppliers need to deal with." Thewlis said 60 per cent of Npower's payment plans are successful – an improvement on a few years ago when the figure was nearer 30 per cent. "We've had a 12 per cent reduction in prepay- ment customers who are in debt, so we're not using prepayment as the predominant way of dealing with debt. We're trying to be proactive and take the customer with us in terms of solving their issues," he said. "Our engagement remains incredibly high at 75 per cent. We're still doing the right thing by customers, we're all really intent on going out on a high, and going out having done the right thing," he concluded. Talking point 5 How can costs for vulnerable customers be shared more evenly? The line that the legacy companies were ser- vicing the lion's share of vulnerable custom- ers was raised by Npower's chief operating officer, Chris Thewlis, who said the big six's costs to serve are oen used as an example of how inefficient the industry is because they are higher than those of the challenger brands. "But if you take my internet-savvy, never in debt, paying by direct debit customers, I have pretty much the same cost to serve. The cost to serve of all the legacy custom- ers is where the real cost comes, because we do have a social responsibility to make sure energy is available, and solutions are avail- able," Thewlis said. "Prior to the price cap, while you had peo- ple that were prepared to pay standard vari- able tariffs, you had people who were paying more than the lowest price in the market, but what that in effect did was subsidise some costs that were then being used to support the more vulnerable end of the market, the more difficult end. "We write off in the region of £15 million to £20 million/year in unpaid energy. We call it a 'free energy fund.' Speaking to one of the new suppliers, I asked them how much free energy they write off a year, and they had no idea what I was talking about. "So, the old rules allowed you to set prices that allowed you to subsidise some of those costs, to solve some of the wider prob- lems. I genuinely think now that the price cap has just generated a problem for that dynamic. "Taking my company for an example, we were just about to get back to profitability when the price cap came in and took £200 million off our top line – there's nowhere to go with that, which is why we're now owned by Eon and will eventually close." A strong sentiment in the room was for a centralised way of sharing the costs to serve for vulnerable customers. The Consumer Council's Andrew White said: "An interesting parallel with water is the geographical basis of the water compa- nies, and the different demographics of the customers in those regions, and then also the funding that those customers have been willing to agree to, in terms of contributing to social tariff funding. So again, there you could advance an argument for a common fund across the country to try to iron out some of those inequalities." Brought to you in association with

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