The UK energy industry has seen massive changes over the last 20 years. Since the energy supply sector became competitive in the 1990s, there has been an unending cycle of consolidation and failure as the largest players have sought cost savings and new entrants have miscalculated the demands of the industry.
Energy supplier failures
The advent of supplier choice for consumers was supposed to usher in lower costs, more freedom and innovation in the industry. However, new entrants have found it extremely difficult to sustain growth and maintain customer service against a backdrop of low margins driven by the creation of a highly competitive environment.
Many consumers do not switch suppliers, which means winning new customers can be expensive for energy businesses. This has driven hard sell tactics, particularly from some new entrants, which has caused complaints from consumers. For those suppliers who have won new consumers in good numbers, there has been a consequential increase in back office work, to manage the onboarding of new customers, through established industry systems and when these fail, there are consequences for the supplier. There is also the need to issue accurate and timely bills, where a mixture of inaccuracies, mistakes and consumer misunderstandings can generate high volumes of customer service enquiries.
The established ‘Big Six’ energy suppliers in the UK have a long history of supplying electricity and gas to consumers. Their systems, staff and support are well tested and their large customer bases enable them to cope with fluctuations in consumer numbers. For new entrants, however, a major success or failure in signing up new consumers can have disastrous effects on the customer service and back office teams. This can cause unpredicted increases in costs and as a result we’ve seen a number of high profile failures of new supply companies:
• Eversmart Energy – 29,000 households affected
• Solarplicity – 7,500 households
• Brilliant Energy
• Our Power
• Economy Energy
• One Select
• Spark Energy Supply
• Extra Energy
• Usio Energy
• National Gas and Power
With the introduction of a price cap and high wholesale energy prices on top of unexpected costs, more suppliers are expected to fail over the coming months.
Suppliers of last resort
Ofgem, the energy industry regulator, assigns a new supplier to the consumers of every energy company which fails. That new supplier then has to cope with the onslaught of new enquiries from consumers who weren’t expecting to switch again so soon and, quite understandably, have some questions they want answered. Taking on a failed competitor’s customer can therefore be tricky, resource intensive and less attractive than you’d imagine.
The recent sale of SEE to Ovo Energy has created a new member of the ‘Big Six’ with 5 million customers. This will add around 8,000 staff to Ovo’s business, and as expected there are likely to be some cost synergies driven out of the combined business. It’s vital that to retain their status as the 2nd biggest UK supplier, customer service levels are kept high throughout the transition period.
In a further shake-up of the ‘Big Six’, Eon has moved to take on Npower’s UK energy supply business. They’ll face the same challenges as Ovo Energy as they look to transform Npower’s loss-making operation and take on their consumers.
Smart metering misery
In recent years, the roll-out of smart meters to homes has caused additional problems for consumers and the industry alike. Just last week, it was announced that the deadline for installation targets in UK homes has been extended to 2024. Alongside the delayed installation programme, many householders are unhappy with the smart meters they have received. Problems with meters failing when consumers switched supplier have rendered the devices almost useless for people who have tried to minimise their household costs, resulting in unhappy customers and customer service issues for energy suppliers.
What does all this mean for customer service?
In an industry which supplies an essential service to every household in the UK, customer service is going to remain under the spotlight for energy companies. The ability of suppliers to cope with fluctuating demands from consumers will affect their ability to win and retain business.
Energy suppliers face a number of challenges when planning the future for their customer service operations:
Customer numbers – can future numbers be reliably forecasted, especially if the supplier is bidding for new business as Ofgem’s ‘supplier of last resort’? How will they cope with large variations in numbers?
Resource planning – if a supplier has merged with a competitor, how are the conflicting demands of providing excellent customer service and realising cost savings for shareholders going to be balanced?
Systems integration and development – how do you choose which systems to adopt following a merger? Can systems be improved to deliver better service and integrated with existing back-office operations? How will this be done within the limits of GDPR regulation?
Skills transfer – can the strengths of a more experienced team be passed into the combined business? How can this be done without harming customer service and minimising staff dissatisfaction?
Outsourcing – is it possible to supplement the team with experts from experienced energy industry outsourcers?
In an essential industry which is regularly in the news, energy companies must strive to maintain not only margins and customer numbers, but high levels of customer service. The high failure rate of new entrants is testament to the unpredictability of the sector and its extremely competitive nature. Ultimately, it will be a case of survival of the fittest; effective planning and management will be necessary to succeed and to cope with the inevitable challenges of the industry and its consumers.
Not even the ‘Big Six’ have been safe. We now have a new group of companies heading the industry and who knows if they’ll still be there in five years’ time? New entrants and old stalwarts alike need to consider customer service as an integral, essential part of their business make-up.
It’s going to be interesting being involved.