Month: November 2014

Saves review a win for innovation

Murray Dyer – Mon, 03 Nov 2014

News from the Electricity Authority that it will look to ban the practice of ‘saves’ within the industry has been met with little enthusiasm by a number of the large power retailers.

The big players are citing a lack of evidence that regulating such a practice out of existence will have any effect on competition. They say that only a fraction of their customer base is ever retained by such methods and that a layer of expensive bureaucracy will be added. The implication being that the whole affair will add cost and be of little benefit for consumers.

Smaller players point out the obvious – that the act of ‘saving’ a customer as they head for the door doesn’t exactly make for a great customer experience. They argue that these last minute saves are stifling their investment in acquiring new customers as the incumbent is able to swoop in and match the deal the customer has been offered with an unpublished deal of their own, nullifying any acquisition investment made up to that point.

This is not the right structure to encourage a truly competitive market and is hardly an enticing scenario for a small retailer trying to build a profitable business or for one of the many non-traditional industry players looking to enter the market.

Like earlier industry reviews – albeit by various organisations – that tackled prudential requirements, or led to the development of the hedge market, the latest efforts to promote competition should be welcomed. The cumulative effect of these reviews is to open the door to firms who have a different attitude to customer service and will introduce new, innovative offerings.

Innovators

The issue of ‘saves’ says a lot about the lack of appetite for innovation within the electricity industry. Throughout the wider economy there’s a shift toward customer-led, distributed business models. Suddenly, data is playing a vital role in helping customers, no matter which sector we’re talking about, make sense of how they’re spending their money. And it’s often the newcomers to market, the small players, who bring with them new and innovative ways of tackling an established industry head on.

Customers like this approach because of what it enables them to do. They’re taking control of their technology-powered lives in ever increasing numbers and you can see evidence of this in the palms of their hands every time you walk down the street.

Smartphones allow people to stay constantly connected to aspects of their lives that, just a few years ago, would have been the exclusive domain of a large utility or retailer. Think of how banking or shopping or communications have been irrevocably altered by technology and the ‘always connected’ customer.

Telecommunications has seen a similar shift away from large centralised utilities and landlines to personal handsets and commoditised, personal data connections — all within the space of a decade. The driving force behind it? Again, it’s new technology and changing customer expectations. No longer is an individual customer at the whim of the corporation and products have had to be adjusted, deleted or invented to suit. For the electricity industry, the same future is in the offing.

Already there is plenty of evidence pointing toward a distributed future for the power industry, with at least half a dozen new brands emerging over the past two years. While total ICPs are still relatively low from this group of new entrants, they are proving new business models.

Examples include niche generators bypassing established retailers to sell electricity directly to large industrial users, or a gas company supporting small distributed peaking plants with targeted offerings. Others include Flick Energy in Wellington offering spot supply via the wholesale market while Auckland-based Hunet Energy is addressing the needs of specific migrant communities with services including language support.

More coming

Non-traditional industry players are watching with interest, waiting for the right technology and offerings to move in on the power sector and secure customers with whom they already have a relationship through their existing business. They want to ‘own’ the customer end to end, and if that means bundling electricity with whatever else it is they’re selling, be it phone contracts or big box retailers, they’ll do it.

But they won’t stop there, they’ll target the same high-value segments the incumbents are trying to protect. And they’ll emphasise a point of difference by making a technology play through innovative use of things like smart meters, solar PV cells and smartphone apps. New self-generation and storage technologies will enter the fray that could potentially compare favourably with utility-based, centralised generation plant and transmission networks.

There can be no guarantees that the big players will survive this upheaval and a decentralised, customer-focused transformation of the electricity sector isn’t outside the realms of possibility in the long term.

Conversely, for existing power companies, the established premise that generators need to own a retail operation to sell their electricity is no longer the case. Industrial users and other utility retailers can buy electricity direct through wholesale markets – something clients are already doing using our ‘white label retail’ and hedging models. Electricity network providers may also enter retail themselves, leveraging their brand, local ownership and balance sheets to once again connect with their owner-customers.

The move by the EA to even the playing field by removing a quick and easy way for incumbents to save a disgruntled customer may be irksome for some in the industry. However, if they don’t embrace the technology-centric, customer-led future that awaits them, ‘saves’ will be the least of their worries.

Murray Dyer is the commercial director of Simply Energy. He can be contacted at murray@simplyenergy.co.nz