The winter of 2011/12 is not shaping up to be a season of goodwill between hardpressed consumers and the UK’s major energy companies. Years of increasing domestic energy bills have been matched by a corresponding rise in the prevalence of fuel poverty. After two consecutive severe winters pushed prices up further, in October the Government called an energy summit in an attempt to ward off consumer disgruntlement before the cold weather drew in again.
According to Kevin Roxburgh, Managing Director of Scottish Gas, the message has been taken on board – the company has promised to freeze prices throughout the winter. Indeed, the price pledge is part of a much broader campaign Scottish Gas hopes will rebuild trust with its 1.5million customers and demonstrate that rather than profiteering, the firm is being squeezed by market signals that continue to force the price of supplying energy ever upwards. “We’re very, very keen to start to have an honest conversation with the customer and the wider stakeholders in the energy space,” says Roxburgh, adding that the key message to put across to the public is “why the price of energy is the way it is and what we can do to mitigate some of those costs in difficult times”.
In the face of rising fuel poverty, Roxburgh says Scottish Gas “absolutely believe that nobody in Scotland should have to be choosing between heating and eating”. Central to assisting consumers in bringing down prices is arming them with the relevant information to make informed decisions. That means being as open and responsive as possible, he adds. A free phone number has been created that allows Scottish Gas customers an outlet to discuss their concerns and negotiate a new tariff. Roxburgh continues: “We’re trying to open up some dialogue with our customers around making sure they are on the best deal, the best tariff for them. It’s very, very difficult to give the customer the best deal unless you understand their circumstances and what’s best for their lifestyle.” Re-designed household bills will now be simplified to provide a breakdown of the various costs that combine to make-up a total.
“Customers told us they wanted bills that were simpler and easier to understand, and we accept that,” explains Roxburgh, adding that customers will now be offered a choice between a tariff that remains fixed over a designated period or a slightly cheaper rate that is nonetheless pegged to price fluctuations. Roxburgh says the principle is similar to the method used to pay for mortgages. He explains: “There’s a real push to simplify tariffs, and whilst that in many ways is the right thing to do, there’s a line between getting that right and then taking away choice from customers.” By opening up and simplifying the charging process Scottish Gas hopes to provide customers with more information about how to secure the best possible rate, but also to demonstrate the external commercial pressures facing energy suppliers in 2011. “The days of cheap energy are gone; it’s just not going to happen anymore.
We are a net importer,” says Roxburgh. The company is forced to rely on imports from a global market increasingly saturated by demand from China and India; last month Scottish Gas’ owner, Centrica, signed a £13bn, 10-year deal with the Norwegian firm Statoil. He continues: “It’s important customers understand the makeup of their bill. It’s not just about the wholesale commodity cost that we have to pay in the open market, but the transportation cost…and of course there’s the cost of the Government drive to decarbonise the UK.” Roxburgh explains government-imposed green levies designed to support the development of renewable energy add around 8 per cent to each bill, and warns that there is no escaping the fact that the burden of the transition to a low carbon economy must be borne in part by consumers. “Either we can do it, or we don’t do it, or we do it at a certain pace,” he says. “And all of those equations will ultimately filter through to customers’ bills.” Roxburgh believes that given ongoing economic difficulties, the current UK Government CERT target, which requires major domestic energy suppliers to play a role in facilitating household carbon emissions reductions, is unachievable within the current timeframe, and believes more slack could be given to hard-pressed consumers. “The goalposts keep moving as the economy goes through a difficult time,” he says, adding that there is a good chance the number of people suffering from fuel poverty will rise this year as a result of the financial malaise.
While the impact of rising costs and green taxes cannot be discounted, Roxburgh says the biggest challenge to consumers remains the energy efficiency of homes. “There are many consumers in Scotland in particular who are using more energy than they should because of the quality of the housing stock,” he explains.
The company believes the problem offers another opportunity to assist those suffering high bills as a result of circumstance rather than behaviour. In response, Scottish Gas has put £20m aside for its ‘warmer winter package’ that promises to give free loft and cavity wall insulation to all of its dual fuel customers.
The company is involved in “very active talks” with the Scottish Government about how best to deploy the money ensuring economies of scale, and to identify the communities most in need of help. The corresponding Warm Home Discount Scheme offers vulnerable customers the opportunity to apply for a £120 discount on their bills. Roxburgh says Scottish Gas offers the broadest eligibility criteria of any UK provider for such a scheme, explaining that the opportunity to help those suffering poor housing conditions should be seen as an obligation for the Government but also the market itself.
In the coming years, Roxburgh says Scottish Gas is unlikely to diversify. “We see our core business as energy, and then energy-related services. And we don’t see ourselves going further than that,” he explains, adding: “Our number one obligation is to ensure we have sustainable supply for our customers in the long term.” Financially, the company is in the strange position of being “at the beck and call of the weather,” with demand being determined by the severity of the winter. “Ultimately we’re still a profitable company,” Roxburgh says, again reiterating that despite the popular perception, the firm’s margins are only around five per cent.
He continues: “We need to have those margins to invest in the long-term future of the energy industry.” Scottish Gas has played a major role in investing in the infrastructure and technology needs of the changing energy architecture, says Roxburgh. Centrica’s total spend on new technology equates to around £1.3bn a year, with micro-generation and solar PV in particular a real focus. In the last four or five years, overall investment has equated to £1.60 for every £1 in profit.
Roxburgh hopes such levels of investment can demonstrate the balancing act the company must achieve to stave off commercial pressures.
With a series of customer-focused measures in place for the coming months, Scottish Gas is confident it can demonstrate its priority of protecting its customers from the worst in a difficult environment.