Over the past several years I’ve worked with various utility companies, and I see the upcoming deregulation of the water utilities representing both a challenge and an opportunity for companies both within, and outside of this sector. The timetable for the deregulation is 2017 for business customers and 2020 for consumers.
So what can the water sector expect? Fortunately, the energy sector went through this nearly 20 years ago in 1998 and the lessons learnt from that activity can be used to make some educated guesses on what the future holds for the water industry.
Energy Sector Lessons
Key challenges for the energy companies
Following the deregulation of energy there were a number of factors that have had a significant impact on the energy market.
- Changing providers became possible with a number of companies offering easy comparison and switching. This leads to consumers being able to easily switch between the various providers.
- Deregulation provided opportunities for new challengers to join the energy sector. There are now some energy providers with no generation or distribution capabilities.
What’s the cost to the energy sector?
There are two main costs of deregulation for providers:
- Customers changing providers. When deregulation occurred British Gas was officially a national treasure and cited as a brand leader. Between 2003 to 2008 British Gas dropped from around 19 million customers to just over 15 million customers. A campaign was launched in 2008 to win customers back. The key focus for the campaign was greater customer care including services such as Call Back—which is a call forward notification of the arrival of an engineer—and Energy Smart to help consumers monitor usage. This helped British Gas stem the flow.
- Ofgem has imposed a variety of penalties for poor standards of conduct, complaint handling, and final bills accuracy. These penalties range from fines to stopping companies actively seeking new customers.
Mobility in Energy
So how do energy companies address poor customer service? A mobile application provides a means to improve customer interaction and information to the consumer. Companies such as USwitch, now offer customers guides on the best consumer mobile applications. Looking at these there are some common functionality themes:
- Submit gas and electricity meter readings
- Pay bills and view account details
- Change direct debit payments
- Book an engineer
- View usage over time
Despite year-on-year improvements in customer satisfaction scores, the scores remain lower when you compare service performance. With over 75% of adults in the UK owning a smartphone a mobile offering is now seen by many consumers as a necessity.
However, a basic mobile application providing the above functions may no longer be enough. In our increasingly connected world some companies go beyond this, offering the ability to control heating and track real-time usage through IoT meters, use OCR for meter readings, etc., through the mobile application.
Water Sector Comparison
So how does the above relate to the water utility? Is there is any correlation for the water sector when compared with the energy sector?
Potential key challenges for water companies
The key challenges for the water companies will probably be the same issues that the energy companies faced:
- With the ability to switch providers, companies such as USwitch—which already provides information on the water sector—will also offer switching service to consumers.
- As with energy, Ayrshire-based Cobalt Water Ltd, which currently supplies business customers in the Scottish retail market, has applied to Ofwat for a water supply and sewerage license in order to supply customers in England and Wales. This is clearly the first of many new providers in this sector
Likely costs for the water sector
As with the energy sector there will be a number of costs and it is likely the same two will be the most relevant.
- Customer loyalty is likely to be a major factor in customer retention. While the average water bill is around one third of the average energy bill a report commissioned by Ofwat in January 2016, suggests that one of the biggest challenges for customers is paying for their water. Unpaid bills have increased from £1.9 billion to £2.2 billion in the four years between 2010-11 and 2014-15. This is an increase of about 17% over four years and is expected to continue to rise. While it is a commonly held belief that low-income families are unlikely to pay their bills on time, a report on why customers pay bills promptly concludes that customer satisfaction is one of the main motivating factors for prompt payment.
- Ofwat, like Ofgem, will measure customer satisfaction through its Service Incentive Mechanism and like Ofgem is expected to reward and penalise companies based on customer service.
Mobility in Water
Currently there are no mobile applications for customers, and given the progress of mobile and IoT technology within utilities, this raises interesting opportunities and significant advantages for those who can move quickly and create a mobile offering.
As seen with the energy sector, a mobile offering will be viewed as mandatory by consumers and will be a factor in their decision of which supplier to use.
It is clear from the energy sector that providing good customer service leads to customer loyalty and satisfaction. This can impact the ability to drive new business and lead to rewards or penalties being imparted/imposed by the regulator.
As seen from the energy sector it is vital to have a mobile strategy for engaging with customers in order to improve customer satisfaction. This helps to reduce bad debt by improving timeliness of payments and increasing customer loyalty.
This is an opportunity for existing suppliers to gain customer loyalty prior to deregulation, and new providers to gain new customers from the suppliers who fail to make the most of the opportunity deregulation provides.