Have utility companies got the appetite and wherewithal to innovate in the right ways, at the right times, to meet the sector’s challenges and transform customer experience for the better?
This question lurked beneath the surface of so much debate at Utility Week Congress 2015. Frequently it bobbed to the surface, linking subject matter that spanned new strategies for customer service and brand management, the role of regulation in incentivising high performance, the place of technology in shaping services, the need for more collaborative and “co-creative” business models and much more.
A cast of high profile industry executives, regulators and technology providers led the conference across two days, spurring a string of news stories with their insights and opinions (see right).
Day one brought insight into programmes to revolutionise communications with utility customers, introducing more rigorous approaches to measuring customer satisfaction and benchmarking “what good looks like”. New perspectives on brand marketing, absorbing contractors into company culture and evangelising the public ahead of the smart meter rollout were all on the agenda.
On the second day, the subject matter became more technical and looked further into the future to try and feel the shape of business models, competition and operations in a world of decentralised and decarbonised infrastructure.
The role of data and the rise of the “internet of things” fascinated attendees from the water and energy industries alike. And although the numbers surrounding this topic are daunting – involving trillion dollar estimates for market value within the decade and billions of connected devices, both industrial and consumer – the breakdown of the strategies and systems being applied to extract value and intelligence from data, were reassuringly methodical.
However, in addition to the positive insight into the strategies and actions being taken to address industry challenges and optimise service, significant questions remained as to whether these are enough.
Doubts about whether the pace of innovation is sufficient to keep ahead of technology curves, rising customer expectations and competitive pressures were openly expressed and Denise Massey, chief executive of the Energy Innovation Centre, warned her audience that “inertia” still kills off too much smart thinking in the sector.
The following pages highlight more key lessons and insights expressed at Utility Week’s flagship conference.
Who said what:
Day 1:
“We can’t keep taking out old capacity without replacing it. On present trends there is a real danger the UK may not be able to cope.”
Frank Mitchell, Scottish Power Energy Networks chief executive
“If you thought PR14 was challenging and that PR19 would be easier, you need to think again”
Cathryn Ross, Ofwat chief executive, warned of further challenges for water companies at the Utility Week Congress on 15 October.
“I think we spend too much time telling everybody that the energy industry is really complicated. It’s not that complicated, you just need really clear communication. We mustn’t underestimate consumers in the utility sector. We do so at our peril, because customers then feel in the dark. ”
Juliet Davenport, Good Energy chief executive
“How can we rapidly improve customer service and productivity? 75 per cent of productivity gains can be made not through high capital investment, not through innovation, but by simply catching up with best practise.”
Alan Kelly, Unipart Expert Practices chief operating officer
Day 2:
“It’s a really interesting test of a regulator seeing whether it genuinely wants to reap what it sows. If it challenges the industry and does respond, is it prepared to let us move forward with that?”
Paul Bircham, network strategy and technical services director, Electricity North West
“Community engagement really is for life, not just for a regulatory review.”
Simon Cocks, chief executive, Affinity Water
“We have to resolve delivery concerns – very clearly, very quickly and very transparently – to make sure that smart metering is delivered at an acceptable cost and experience for customers, and we have to get it right first time, because there is only one time.”
Sara Jane Asquith, director of smart and metering transformation, SSE
“We spend a lot of time analysing transition pathways and how we get towards low carbon, and it’s very clear that heat plays a very significant role in that.”
Jo Coleman, director of strategy development, Energy Technologies Institute
“We need to innovate and improve, as do our competitors. That sort of innovation is what you might call incremental innovation – how we build a better energy retail market. But the bit that’s really interesting is the potential for retail market disruption – in 20 years’ time the concept of needing an energy retailer might completely disappear. That’s quite alarming if you’re an energy retailer.”
Will Siddall, head of innovation, data and analytics, RWE Npower
Intervene for innovation
One of the closing sessions at Utility Week Congress 2015 brought the requirement for regulatory intervention for the benefit of innovation to the fore.
A panel of experts including: Nick Winser, chair of the Energy Systems Catapult; Paul Bircham, network strategy and technical services director, Electricity North West; and Iain Miller, head of system design, Northern Powergrid, discussed the strategies and technologies needed to realise a future of smart, flexible and integrated energy networks. The debate quickly showed a range of broadly aligning opinions on the need for more clarity around how market mechanisms are going to adapt to allow electricity and gas distribution networks to participate fully in demand-side activities and local balancing.
At the moment, while demonstrator projects are proving that the technical solutions for network engagement in demand-side and smart frequency management are ready to be deployed, there are conflicts of interest between established National Grid mechanisms, like Stor (short-term operating reserve) and the nascent market for more localised demand-side response.
Furthermore, said Bircham, interventions need to be made so that networks can be sure of achieving returns on innovation investments. Today, he said, there is no certainty about how the revenues networks earn via innovative new systems that engage consumers in balancing services will be treated by the regulator in the future. Without being confident of returns, the incentives for networks to take the risks inevitably associated with bringing innovative ideas to market are unclear.
SIM – unintended consequences
The service incentive mechanism (SIM) introduced to drive up customer service levels in the water industry was a focus of debate on day one of Utility Week Congress.
While widely recognised as having been an effective driver for improved customer service in the sector, concerns were raised about the unintended consequences of the measure.
Northern Ireland Water’s customer service director, Liam Mulholland, said he had concerns that SIM is creating “a world of computer game cheats” where water companies make gaining a good SIM score their objective, rather than focusing their efforts on the reality of customer experience. This is not the way to build trust with customers, Mulholland said. The consumer will not appreciate a high SIM score if it does not reflect their own experience.
Thames Water’s chief customer officer, Andrew Reaney, agreed that the “size of the penalties and incentives can deliver the wrong behaviours”. However, neither Reaney nor Mulholland were opposed to the continuation of SIM. The former described it as being “a blunt instrument” but one that broadly achieves the “desired outcome”.
The Institute of Customer Service’s chief executive, Jo Causon, meanwhile shared her ideal of a world in which exemplary customer service exists without the need for regulatory measure or prompts.
The benefits and potential pitfalls of using SIM to incentivise excellent customer service will also spark debate at Utility Week’s Water Customer Conference, 20 January 2016.
Find out more at www.uw-watercustomer.net