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28 | 11Th - 17Th AprIL 2014 | UTILITY WEEK Customers Market view The value proposition The energy industry has serious work to do in persuading consumers that the work it does really is serious, says David Brown. C onsumer trust in the energy sector is at an all-time low. Customers are mov- ing to smaller retailers that offer fewer, simpler and oen cheaper tariffs and pay- ment plans. British Gas alone lost 362,000 residential customers in 2013, according to The Independent (20 February 2014), as challenger brands adopting more customer- centric, open business practices proved increasingly attractive. This is evidence that competition in the sector is on the rise, but many argue that the big six suppliers are still dominating the market, hence the decision from Ofgem to refer the sector to the Competition and Mar- kets Authority (CMA). It is easy to point fingers, but the focus should be on promoting competition and supporting retailers on a path towards the differentiation that underpins competition. Should this be the course of action, the industry will go one of two ways in terms of customer service and pricing. It will either centralise or diversify. A centralised indus- try will see all the retailers with ostensibly similar pricing and customer relationship management practices, differentiating them- selves with unique corporate social responsi- bility and investment practices. A diversified industry will see retailers competing on obvious points of difference. They will either offer cheaper energy tariffs at the expense of investment and customer service or centre business plans on excellent service and social responsibility practices. The second model prevails currently. Prices and service practices vary across the retailers and if current trends are any indicator, those who can provide good customer service, rea- sonable prices and honest practices will be successful. In other words, trusted utilities will win out on the day. Perhaps the most radical change will happen in the FMCG (fast moving consumer goods) and retail sectors in response to the British Retail Consortium's (BRC) recent pro- posals. The BRC proposed in February this year that the current business rates system be scrapped, and it made four recommen- dations to replace it. The most pertinent for the energy sector is a tax that would be based on gas and electricity use. This change would require an amendment to the Climate Change Levy and would mean that compa- nies or landlords that reduce electricity and gas usage, or invest in energy efficient tech- nology and business practices, would face lower business rates. Putting the politics behind this recom- mendation aside, this is of importance to the energy sector because it will ramp up the complexity of the billing process and the vol- ume and type of information that will need to be made available to consumers. It is already evident that some parts of the industry are struggling with archaic soware and lack agility when it comes to change. If these recommendations are enacted, some retailers will not be able to keep pace with their competitors. The energy sector is in a problematic posi- tion. Renewables need government subsi- dies, and that means taxpayers foot the bill. Whether these costs are levied by energy retailers or are absorbed into general taxa- tion is academic. Consumers need to under- stand the need for subsidies and investment and how these are being spent. At the moment, the industry is doing a poor job of communicating. Bills are poorly explained and poorly understood, as are tar- iffs. The money must keep flowing to support long-term investment in sustainable energy. For this to be successful it must be under- pinned by customers having a clear under- standing of what they are paying for, why it costs what it does and its overall "value". Energy suppliers and retailers are facing a bumpy road and difficult decisions over the next few years. Some will fall behind while others excel in an industry working hard to change its image and regain consumer trust. Maybe a focus on communicating value to customers instead of the usual cost approach is the key. Introducing more transparency in conjunction with a customer-centric approach will at least ensure that utilities can evolve with their customers. David Brown, vice president for Europe, Gentrack ELEcTrIcITY Smart time-of-use tariffs a step closer Smart time-of-use electricity tariffs have moved "one step closer" as Ofgem announced plans to reform the electricity settlement process. The reforms would allow suppliers to accurately track a customer's usage and provide price signals for load to be reduced at peak times, or for lower prices to be offered when electricity is cheaper. Ofgem senior partner, market, Rachel Fletcher said: "Taking these steps now means that we can make the energy market work even better for consumers." ENErgY Energy complaints hit 'record high' The number of complaints made against the energy com- panies has hit an all-time high, according to figures released by the Energy Ombudsman. There were 10,638 com- plaints in the first quarter of 2014 – up from 3,277 in the same period in 2013. There were more than 2,000 complaints about customers not receiving bills, while 1,474 consumers com- plained about billing charges. ENErgY IHDs could save customers £6bn The in-home displays (IHDs) that accompany smart meters could help British energy con- sumers save more than £6 bil- lion, according to Beama. A report by the trade asso- ciation for the UK electrical manufacturing industry found that an average electricity and gas customer with a smart meter and an IHD would be likely to save £147 per year. This would equate to more than £6 billion over a three- year period. Briefs