Utility Week

26 | 8TH - 14TH JUNE 2018 | UTILITY WEEK Customers Analysis Key findings: pricing as a postcode lottery Overall, our research uncovered a consensus across all utility types and representatives of consumer groups that there is not a simple and direct correlation between price and trust. In other words, driving toward lower prices for utility services will not guarantee an increase in public trust in the sector. Consumers are capable of holding con- flicting views about the trustworthiness of companies and the value they receive for the service provided. And customer readiness to pay more for quality service is generally lower for utilities than elsewhere. Beyond reducing prices, it was agreed by all research participants that a focus on "fair" pricing is paramount to increasing trust in the sector, and that this relies on improving price transparency. In the energy sector in particular it was acknowledged that despite strong efforts on the part of many suppliers and network companies to explain energy costs to con- sumers, more needs to be done to promote transparency, make the breakdown of costs on consumer bills easy to understand, and make it easier to compare energy tariffs. A number of barriers stand in the way of achieving this simplicity in energy pric- ing, however. The most prominent of these, according to our contributors, is inequality in the allocation of supplier obligations and complexities arising from a pricing structure based on unit rates and standing charges that can vary in format from supplier to supplier. The significant permutations of price that this two-pillar structure for energy pricing creates is a barrier to greater transparency and the comparability of energy retail tariffs, according to some contributors, because it means companies cannot clearly advertise tariff rates nationally. It was felt this could be perpetuating long- standing suspicions among some consumers that energy pricing is a "postcode lottery" – an issue that has also been identified as a source of dissatisfaction and distrust in the water sector because of an outdated reliance on rateable values for unmetered properties as a basis for charging. Unsurprisingly, there were mixed views about the role energy price regulation will play in creating or eroding transparency and trust in market prices. Many suppliers feared it will exacerbate issues with consumer dis- engagement, raising barriers to transparency and creating scope for a disastrous impact on trust when customers realise that the cap does not guarantee them the best price. On the other hand, some representatives from consumer groups insisted the cap could create a trusted benchmark for price move- ments, which would enhance consumer trust. One such contributor commented: "A possible outcome of price regulation may be that people's trust and confidence that they are being charged fairly for their energy increases, because the regulator will be able to issue a signal as to what direction prices should be going in." Despite controversy over the impact the default price cap is likely to have on broad consumer confidence in energy pricing and their trust in the sector, there was unani- mous agreement that recent steps to protect vulnerable customers from unmanageable energy bills were needed – even if not all agreed that caps for vulnerable customers have been implemented in the best way. This sentiment reflects a general view across all utility types that it is right and proper for companies to ensure customers in vulnerable circumstances should not be deprived of essential services or distressed by receipt of bills they cannot pay. There was an overwhelming expres- sion of social purpose from utilities on this point and an emphatic message that com- panies are happy to go to great lengths to help mitigate the difficulties that vulnerable customers face. This said, a significant proportion of par- ticipants also admitted to rising concerns about a direction of travel that seems to increasingly position utility companies as an extension of the welfare state. In particu- lar, these participants were concerned that company-led approaches to supporting an increasingly a broad church of vulnerable customer types are unsustainable and could increasingly be open to attack for lack of consistency and regional differentiation. There were also significant concerns across all research participants that a smart future, despite including many potential benefits for companies and customers, could aggravate and complicate vulnerability issues, leading to further erosion of trust. The scope for digital exclusion as a new form of vulnerability was a leading concern in relation to a smart future, however other issues were also cited, including: the scope for mistrust of data handling practices and company motivation in relation to data col- lection; smart tariff complexity and lack of comparability, and the temptation for sup- pliers to use data to avoid less commercially appealing segments, including those with established or emerging vulnerability. All the above issues are accompanied by a ra of complex and nuanced factors that vary considerably depending on the utilities sub-sector in question. These dynamics are explored in further detail in the full report, available to download free at https://util- ityweek.co.uk/exclusive-report-pricing-trust- utilities-conundrum/ But while customer-oriented outcomes were unanimously agreed to be the primary driver for digital investment, there were varying views on which investments are best designed to deliver these. AT A GLANCE… There is no direct and simple correlation between pricing and trust, but confidence in fair pric- ing is an essential foundation for trust. Achieving price transparency is easier said than done. Market mechanisms and structures oen prevent straightforward and consistent marketing of utility rates or bill contributions. There are mixed expectations around the impact that widespread price regulation will have on trust in energy retail pricing. Utilities have embraced their responsibility for vulnerable customers and are ready to go to great lengths to protect against service exclusion and assist vulnerable individuals in times of need. But, there are significant concerns that expanding definitions of vulnerability and differences in regional willingness to subsidise company schemes are leading to increasingly obvious inconsistencies in utility approaches to providing support. A smart future promises to transform the way in which utilities charge for their services, pro- moting fairness, increasing choice and, therefore, promoting trust. But a smart future also runs the risk of creating new classes of vulnerability due to digital exclusion and unequal access to enabling technologies. It also risks creating complexity and driving down transparency in the pricing of utility services to the detriment of trust. Customer suspicion over company motivations for collecting customer data could also add a new barrier to improved trust in the sector.

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