By Samuel Van-Arnold, Regulatory Strategy Manager, Gentrack
A tsunami of costs
While the cost of energy, increasing Retail Prices Index and inflation rates have grabbed the headlines over the past couple of weeks, we mustn’t lose sight of the impact of other rising utility costs. In the domestic water sector for example, prices are going to rise annually by £7 per household on average, with some companies increasing prices by £26 per annum.
Energy and water are intrinsically linked – electricity generation requires water that’s heated to turn turbines and water needs energy to power water treatment works. If the cost of energy remains high, it’s likely that this could impact costs on water suppliers and lead to more cost increases in the future.
The magnitude of the hike in cost of living will have a far-ranging impact and suppliers are already seeing increasing numbers of households and businesses struggling to pay.
The timing of this couldn’t be worse – at the end of 2020 Citizens Advice research estimated that 6 million UK adults fell behind on at least one household bill during the pandemic. With the increase in energy prices, Citizens Advice now estimates that more than 8.5 million consumers won’t be able to cover the costs of their energy alone.
Utility suppliers (particularly domestic suppliers) are bracing themselves for a tough period. They’re likely to face increasingly higher numbers of consumers in payment difficulty, which may in time result in higher debt costs. Eventually and inevitably these debt costs will need to be absorbed by bill payers – further compounding the issue of increased bills.
From my experience of working for several energy suppliers during difficult periods, there are key steps that they need to be taking to mitigate some of these future impacts. These include:
- Proactive identification – often the first indication that a consumer is in payment difficulty is the fact that they simply don’t pay. Suppliers need to identify consumers who may be struggling to pay (such as those whose consumption patterns have suddenly changed) and quickly offer support to those falling behind on bills. Furthermore, consumers must know about the help that is available and suppliers need to make it easy for consumers to get in touch.
- Getting it right first time – getting the basics right around billing and service reduces the need for consumers to contact suppliers and enables suppliers to free up staff to support those who really need to speak to agents. It also enables suppliers to be efficient, reducing costs to serve which can eventually be passed on. This means getting actual reads to produce bills, having accurate Direct Debits and taking payments on time.
- Agile solutions – the number of consumers that will potentially require support means suppliers need to be flexible in their solutions. No two consumers or their circumstances will be the same. It’s important that suppliers empower their employees to generate creative solutions to support their customers and provide a variety of methods for them to get in contact.
Riding the wave
The cornerstone to delivering the above steps is better, more frequent data that can drive compelling insights.
Having access to smart data and consumer behavioural patterns would help water and energy suppliers to identify those in need and therefore be in a proactive position to provide more support. With access to these insights, suppliers could improve their billing accuracy and cost to serve efficiency by getting things right first time. Other cost benefits such as reducing leakage for water suppliers or accurate setting of Direct Debit levels could also be realised through access to smart data.
However, when it comes to data the utilities industry is stuck in the dark ages. The energy smart metering programme has been rumbling on for a decade with currently only around 47% of domestic consumers with a smart meter, and there is currently no mandate for water suppliers to install smart meters. We covered this in our recent blog “The ongoing saga of the ‘’not so smart’ meter rollout”.
We’ve seen first-hand at Gentrack the benefits that data can bring with the development of our Meters Data Services (MDS) on AWS. In Australia, MDS was used as a solution to deliver the 5-minute settlement programme that resulted in six times more customer data captured in energy supplier systems. Using MDS to aggregate and calculate meter data for rating resulted in a 75% reduction in invoicing duration allowing billing to be processed a day earlier – thus pulling forward significant cash-flows. The enablement of real time billing has led to improved staff efficiency, increased productivity and reductions in operational costs, due to the elimination of manual processes.
At a time when we’re facing a huge UK energy and water poverty crisis and utility suppliers are under enormous pressure to keep costs as low as possible (whist surviving themselves), we need to lean into the technology which underpins and enables the actions outlined above.
Beyond the horizon
I’m a strong believer that necessity is the mother of invention. In this time of crisis, there’s a need to take major steps to move the utilities space forward, deliver benefits for consumers and accelerate delivery of net zero.
We’ve said it before and to summarise this blog post, I will say it again – high smart meter penetration will lead to increased data and greater insight, driving efficiencies and new products which are essential for delivering great outcomes for consumers.