Softening the impact of winter bill shock

Posted: 3rd December 2018

Winter brings about many challenges for customers and the utilities providers that supply them.

From December to February (and sometimes beyond, as we saw last winter), demand for gas and electricity rises dramatically, as does the volume of interactions between customers and supplier.

Whilst utilities providers and the generators that power the 27 million homes in the UK will surely now be prepared for winter surges as usual, bill shock remains a recurring strain on customer-provider relations.

Customers often find their first bills of winter much higher than those during the warmer seasons, which can come as something of a rude awakening. This shock is a real potential catalyst for customers reaching out to their supplier and complaining if they feel they are not heard. Add to this stress extreme weather events, snowed in homes, burst pipes and flooding, we can begin to see why firms often struggle with the complaints surges and overflow of customer contact during winter.

For example, during the height of the “Beast from the East” winter storm (that lasted from the end of February until early March 2018) the British wholesale gas market saw demand that was above 400 million cubic meters per day. This was the highest gas demand since 2012, leading to the National Grid issuing a ‘Gas Deficit Warning’. At the peak of this storm – the 1st March – wholesale gas prices rose far above the average of about 46p per therm to 231p per therm, returning to a third of this value the next day.

Energy prices are again tipped to rise in line with the temperature falling this year – a squeeze on supply and storage of gas partly to blame for a rise in the wholesale cost (currently hovering around 65p per therm). Seeing that wholesale costs make up about 45% of a customer’s overall energy bill, those who live in poorly insulated homes or in areas that see the worst of the weather are bound to see an spike in their bills during peak periods.

Default tariffs and caps

Much has been said in the media lately about the cost of remaining on a default tariff. A 2017 report from the Competition and Markets Authority highlighted the fact that 56% of UK consumers have never switched supplier, and that two thirds of all customers remain on a standard variable tariffs (SVT), meaning they are often paying more than they need to.

An energy price cap was agreed upon in November this year, with Ofgem setting the maximum price for an SVT to £1,137 per year (to come into force from the 1st January). Whilst this is good news for many consumers, there is still time in December for prices to creep up, heating systems to be switched on and bills to grow. Of course, this price cap does not ensure that customers wills always get the best deal. The cap will only save customers around £76 per year on average. The best way to save money on utilities cost remains shopping around and investing in heat saving measures such as better insulation.

Education and transparency remain key

Energy providers are no doubt aware that they have many ‘sticky’ consumers in their customer base – those who haven’t changed their tariff for a number of years (if ever) – and that tackling ‘stickiness’ will likely improve customer outcomes.

The regulatory and industry parties involved in supervising the energy market have made it clear that a lack of choice and so-called ‘loyalty charges’ have led to problems in the industry. Innovation on how to make the industry more transparent and products easier to compare and understand is key to softening the annual blow of bill shock.

Ad campaigns similar to those that are encouraging people to switch bank accounts could be useful in this effort – though it is unlikely that firms will want their profitable, sticky customers to leave en masse. Whilst the regulator continues to put pressure on suppliers to keep their utilities costs down in general, Ofgem does suggest that people shop around for a better deal.

Encouraging consumers to undertake cost and energy saving measures – such as fitting water-saving shower heads and unplugging devices on standby – will not only help ease bill shock, but also reduce the strain on energy, water and gas production as well.

Winter may be uncomfortable at times, but the bills at the end of the period needn’t be too shocking.

Firms can do more to dampen the shock

Although it is highly unlikely that firms will be able to slash their charges significantly (as we’ve already noted, wholesale prices represent a large portion of the final bill), there are a number of things firms can be doing to lessen the impact of winter bills for their customers and, from that, lessen the impact of complaints and disputes on their own operations.

Firms need to be making proactive contact with their customer base ahead of – and during – winter. Whilst social media can be helpful in this, it is not the be-all-and-end-all answer to communications.

During the Beast from the East (which caused unpredictable damage to water infrastructure), for example, 40% of customers received no communication from their water provider, even as 36,000 of them did not have access to water for over 24 hours.

Customers should be advised, through social media, emails, mail and even text messaging if any disruption or dramatic rise in costs should be identified. The quicker firms can predict or respond to these spikes, the happier customers will be.

Smart meters that monitor usage and provide consumers with estimates of their future bill will be key to managing bill shock going forward. Though it is unlikely that smart meters will be installed in every home in time for the worst of the coming winter, their use should make bill shock a non-issue in the future. If customers do not yet have access to smart meters, firms should be advising customers to maintain regular meter readings (perhaps even with savings incentives), especially through winter months. No one likes to trudge out in the rain or snow to read the meter but keeping your provider up to date will help avoid any miscalculations or over-estimates from resulting in a painful bill.

Preparing for winter surges

It is largely common knowledge by now that billing is responsible for the majority of complaints across the utilities sector, and this is something that isn’t going to be fixed overnight. As winter brings the cold weather, increases energy and gas usage and inflates bills, utilities firms may find themselves overwhelmed by complaints or other forms of customer contact. As part of your normal stress testing and capacity planning, your firm should consider partnering with a specialist outsourcing partner who will be able to deliver skilled people to manage any overflow.

Utilities providers should also perform a detailed root cause analysis to understand what issues could be causing customers to fall foul of bill shock or out of communication. Looking back at your firm’s past performance, including where spikes in complaints have occurred and where resource has been strained, is vital for delivering better outcomes for your customers and, ultimately, a more comfortable winter for all involved.