It has been a turbulent year as gas, water and electricity providers faced their own individual battles that affected their profitability.
Gas companies in particular hit the headlines for all the wrong reasons and appear to be in an unenviable lose/lose situation. On the one hand they have angered the public by hiking prices skyward, on the other these higher charges are not going directly into the corporate coffers as profit.
In March, Powergen and British Gas announced they would be raising gas prices by 24.4 per cent and 22 per cent respectively, and electricity charges by 18.4 and 22 per cent. The dramatic price increases are because the companies do not ‘own’ most of the gas they sell but rely on re-selling from the wholesale market.
During the last two winters, prices of wholesale gas and electricity have shot skywards, so that retailers have had to buy at higher prices that cannot be recouped through retail tariffs. In fact, Datamonitor estimated that five of the major UK suppliers – npower, Powergen, SSE, ScottishPower and EDF Energy – had combined losses of £671 million in 2005.
"All utilities will gain from a £2.2m project to create a 3D map of the mass of pipes and cables under our roads and help prevent the chaos and danger caused by workmen"
Pricing to prevent customer churn
Against this, utility providers have to cope with significant levels of customer churn. With little to distinguish between them in terms of product offerings, the only differentiating weapon is price.
To cope with the price rises, gas utility companies are concentrating on reducing costs from their IT structure and finding new ways to improve customer service and slow down the customer churn.
British Gas, the UK’s largest provider, announced in July that it would cut 2,000 jobs and outsource a further 1,000 posts to India as part of a £430m IT change programme, designed to computerise 18m customer records. Centrica, British Gas’ parent company, CIO Peter Brickley said last year that the move was designed to change the role of IT from business support to a strategic partner.
The chief investment for these changes is in SAP and Siebel. Phase one of the transformation to sort out its customer service and sales has already been implemented. The organisation is converting its billing systems to SAP, so that customers can receive a single bill for gas and electricity.
In a further bid to improve its customer services, British Gas signed a deal in February with @Road, a provider of mobile resource management solutions, to help its 6,500 field engineers. The new system will help the company manage this huge field force more effectively and ensure the most available engineer is sent on each call.
Electricity suppliers fared better than gas companies, because they were able to generate enough power to cover supply needs. Even though electricity supply operations made a loss, this was counterbalanced by profitable generating operations, such as coal-fired and gas-fired power stations.
Ever on the look out for new energy sources, there are plans for a £1.5 billion wind farm at the Thames Estuary. This will be the world’s largest wind farm with up to 270 turbines more than 20km off the Kent and Essex coast, providing energy for a quarter of all greater London homes.
Southern Water faces rough ride
The water industry has been hit by its own problems, as a dry winter means many customers will endure a hose-pipe ban this summer. Southern Water is in for an even rougher ride. It is being monitored by the Serious Fraud Office after failings in its customer service operation.
The water authority could face a fine of up to £5m because it failed to provide customers with a satisfactory service. It has already admitted that it did not meet standards for billing inquiries and complaints, when a new billing system laid bare the fact that previous figures it gave Ofwat had not been accurate.
All utilities will gain from a £2.2m project announced in March to create a 3D map of the mass of pipes and cables under our roads and help prevent the chaos and danger caused by workmen digging through electricity cables and gas pipes.
Researchers from Leeds and Nottingham universities, with backing from the DTI as well as utility partners, will integrate paper and digital maps and link them with data from GPS systems. Utility companies, planners and contractors will then be able to access the information from a PC or handheld device.