In the shadow of looming legitimacy questions and a changing energy system, energy networks are racing to improve customer engagement and satisfaction. Utility Week explores the strategies, values and investments behind DNO performance against Ofgem’s Broad Measure.
What’s in this article?
- Introduction
- Executive Summary
- Expert commentary: Maxine Frerk and Ashleye Gunn
- DNO interviews
INTRODUCTION
Political and regulatory scrutiny of utilities is intensifying while public trust in institutions remains fragile. It’s an environment which is piling many pressures on the sector, to provide transparency around all aspects of their businesses, and to deliver exemplary service.
Not least, this pressure applies to regulated energy networks, which must now prove beyond doubt that they are not exploiting their monopoly status to deliver substandard customer service while returning healthy remuneration packages to executives and lining the pockets of shareholders.
This focus on network customer service has been rising for some time and in 2012, Ofgem demonstrated that it was sensitive to the need for greater assurance in this area by adding the Broad Measure of Customer Service (BMCS) to its regulatory arsenal.
The measure is designed to incentivise distribution network operators (DNOs) to improve the quality of their customer service and demonstrate that the regulator is holding companies to account when they fail to meet standards.
The BMCS employs a range of mechanisms to try and stimulate the kinds of incentives which non-monopoly businesses experience to deliver high levels of customer satisfaction in competitive markets. These include a customer survey, a complaints metric and an assessment of company effectiveness in engaging with stakeholders.
Over time, the detail of the mechanisms within the broad measure have evolved slightly. For instance, when the RIIO regulatory framework was introduced, Ofgem moved to include feedback from customers who have received outbound communications from DNOs about interruptions, reflecting a drive for greater proactive messaging across the industry. The regulator also imposed a requirement for companies to specifically report on their engagement with vulnerable customers.
By and large however, the BMCS has remained unaltered since its introduction and has been embraced by DNOs, which overwhelmingly believe it to be an effective and fit for purpose way of incentivising better customer service.
Ofgem too has broadly expressed satisfaction with the way DNOs have responded to the measure. For the duration of RIIO-ED1 it set out a maximum reward or penalty for performance against the BMCS of +/- 1.5 per cent of each DNO’s base revenues and in 2015-16, the first year of RIIO-ED1, only one company, Electricity North West, received a penalty for falling short of Ofgem’s minimum expectations. The penalty was for shortcomings in the customer satisfaction survey element of the measure.
Meanwhile, the top performer, Western Power Distribution, received over £18m in rewards for outperformance in 2015-16, with its East Midlands license area bringing home the biggest rewards.
Overall, since the introduction of the BMCS, DNOs have shown consistent improvement against its metrics. More recently, the gap between the best and worst performers has also started to close, with laggards making gains in areas of weakness. As a whole, the sector can therefore be said to be delivering a generally higher level of customer service across the board, than it was before the BMCS was brought into being.
This said, Ofgem has been clear that it expects further improvements against the BMCS, particularly with regards to connections customer service which is universally acknowledged as the weakest area for performance across DNOs. The regulator has also stated that rigour in stakeholder engagement, to drive continuous improvement on priority issues for customers, will come under scrutiny in the upcoming price control for RIIO-ED2.
With network customer service in the spotlight and regulatory rewards still to be reaped over the remainder of the price control, Utility Week sought to understand what activities DNOs have found most effective in boosting their BMCS performance to date, and what initiatives they hope will enhance their performance over the remainder of RIIO-ED1.
The following summaries of DNO customer service strategies are not designed to give in-depth insight into the initiatives and activities being run by DNOs. Rather, they aim to give an overview of the visions and values which characterise each network’s approach, as well as approaches which have delivered quick performance wins, or which are expected to deliver the next transformational changes to performance.
Each summary, is based on an in-depth interview, conducted by Utility Week, with a senior leader holding responsibility for BMCS performance at an individual DNO. The interviews are ordered according to the size of the BMCS rewards gained by each network, taken as a proportion of their 2017/2018 revenues.
| DNO | Total 2015/2016 reward | Reward as a percentage of revenues |
| WPD | £18.26m | 1.23% |
| SPEN | £6.02m | 0.82% |
| UKPN | £8.54m | 0.63% |
| NPG | £2.87m | 0.5% |
| SSEN | £2.82m | 0.34% |
| ENW | £0.39m | 0.1% |