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Customers Market view Tariff reforms may raise costs Simplifying tariffs is in everyone's interest, but the way it is being mandated by Ofgem could disadvantage some big suppliers and mean an increase in costs, says David Brown. W hen Ofgem launched its Retail Market Review (RMR) in late 2010, it did so in response to growing concerns that the market was not working effectively for consumers. While consumers should always be at the core of every utility provider's business, wholesale changes and reforms to tariffs, as well as communication requirements, could prove detrimental to suppliers who depend on outdated customer relations methods. Making tariffs simpler and customers communications better are laudable aims, but the means by which utilities are being required to implement the changes could be problematic and damaging for some. The principal of the recommendations made on the back of RMR is to simplify the market for consumers and make it fairer. And further to the changes implemented at the beginning of 2014, requirements which must be in place by 31 March are revolutionising the industry's communication practices. These modifications include: • heapest tariff messaging. Utilities will be C required to provide customers with personalised information on how much they could save by switching tariffs offered their current supplier. This is designed to prompt customers to consider their options and improve awareness of the savings that could be made. • ariff comparison rates. Consumers must T be provided with a simple means to compare the costs of different energy tariffs by different suppliers in the same way they can compare credit card and loan rates. • ariff information labels. Standardised T methods of presenting energy tariff features will be introduced to help consumers compare them across all suppliers. The smaller, more customer-orientated, suppliers such as Ovo are already providing many of these services under other names. However, for utilities operating with outdated systems this will be a hugely complex and potentially expensive business. Utility providers will have to develop and manage sophisticated internal and external customer relationship management systems in order to 28 | 24th - 30th January 2014 | UTILITY WEEK provide these enhanced services. This means ensuring that up-to-date and accurate information on thousands of households and places of work across the UK is gathered and made available at very short notice. If managed incorrectly, there is a risk that increasing infrastructure costs may be passed on to the consumer as overheads go up. In the short term, imposing huge changes to systems and data management will improve customer service but with significant financial implications for those adapting archaic software. When you consider that Npower invested £200 million in its customer service platform over the past three years, it is clear costs can escalate. At this important juncture, it is vital that utilities, legislators and regulators ensure that customers are at the core of their activity. Engaging consumers and providing clearer communication is the central focus of all the stakeholders involved in these reforms, and falling at the first hurdle would be disastrous. Utilities must consider the means by which their customers are given information. The proposal is only that all this information be included on bills, but this may fall short of the demands of a digital population who want the information to hand at short notice. The reforms are dictating a proactive and open approach that relies on current billing practices, but it appears there is no allowance for reactive services. The means by which this new information will be made available and an explanation of why it is being made available will dictate the success of the reforms. The changes mandate that personalised information relating to cheapest tariff messaging be included on the front page of customer bills. The second page must include consumers' current tariff information such as tariff name, exit fees and their annual consumption. It will also provide information on the t ariff comparison rates. There are further requirements in terms of billing: annual statements that provide a range of information on a consumer's energy costs and consumption rates will need to be provided in a specified layout. This includes information such as the cheapest tariff messaging, a version of the tariff information labels, and a graph of consumers' consumption levels over the past 12 or 24 months. Utilities will also be required to provide price increase notices, which will need to express the previous and new rates as well as a comparison of the personal projections at the new and old rates. Amending the structure of a physical bill is a relatively straightforward process for a utility, however reaching an agreement on a unified format for the information will prove much harder. There are significant risks for utilities when it comes to providing estimated bills based on average consumption. It is easy to foresee a situation where projected costs become impossible to meet because fluctuating energy costs or policy changes have an impact upon energy provision. In this situation, consumers, legislators and regulators will again be at loggerheads with suppliers who they will deem to have reneged on an agreement that has become impossible to meet. We have seen wholesale changes in pricing structures in recent years, and the reforms are another step along the way. Responding to demands from the public, energy providers need to consider that further changes will be likely. No doubt consumers will want the information that the reforms purport to offer, but the medium of its delivery will change. With this in mind, utilities must ensure that they recruit and develop partnerships with flexible and forward thinking software providers. There has been a huge migration of customers to more service-orientated energy suppliers, who stay ahead of their competitors by ensuring that customers are central to their practices and providing detailed and correct information in a cost efficient way. It is clear that some utilities need to engage with consumers more effectively and lead developments in the industry rather than react to demands. David Brown, vice president for Europe at Gentrack