Energy transmission and distribution network companies, unlike most commercial enterprises within the energy sector, are not subject to the same market pressures as energy suppliers because they maintain regional monopolies. Historically, therefore, they have faced less demand to engage with their consumers, although their charges make up approximately 26% of an average consumer’s energy bill.
The activities and charges of energy transmission and distribution network companies are regulated by Ofgem, who are tasked with evaluating and approving each company’s multi-year business plan on behalf of consumers and other stakeholders. In the last price control period (2014-2018) Ofgem introduced the condition that part of their assessment would be based on whether a company had effectively engaged with their consumers.
This new condition required companies to demonstrate how their business plans had been informed by the views of consumers, and resulted in unprecedented levels of engagement by the sector. It also prompted a growing recognition among companies of the value that consumer engagement could bring, including: increased customer satisfaction; efficiency savings; greater understanding of consumer priorities; clear directions for improving communications between the company and consumers; and an increased social licence to operate.
For the next price control period (2019-23) Ofgem has indicated that they want to see the ‘voice of consumers’ further strengthened in the next round of business plan development (a process referred to within the industry as RIIO-2_ - Revenue = Incentives + Innovation + Outputs). This aim for ‘enhanced engagement’ has been welcomed by Citizens Advice, who have a statutory role to represent the interests of domestic and small business energy consumers in the preparation and delivery of these plans.
To support their advocacy role Citizens Advice therefore commissioned a research project to better understand how the ‘voice’ of energy consumers can be strengthened in the development delivery of Energy Network Company’s business plans, and embedded in their ongoing activities, throughout RIIO-2.
What we did
To prepare this report we undertook:
- An initial literature review and scoping assessment of engagement during RIIO-1 (2014-2018);
- An analysis of how different regulatory models have been used within the UK. This included the preparation of case studies exploring the strengths and weaknesses of three different models deployed during recent price control processes:
- Consumer Challenge – as used by Ofwat in the water sector in England and Wales;
- Negotiated Settlement – as used by the Water Industry Commission Scotland;
- Constructive Engagement – as used by the Civil Aviation Authority to set price controls at Heathrow and Gatwick airports.
- A company survey covering: approaches used to engage domestic and small business consumers; involvement of consumer representatives in stakeholder groups; changes made to plans and delivery as a result of these activities; and changes/challenges anticipated during the RIIO-2 period (including 4 in-depth interviews);
- A review of relevant consumer engagement literature, with particular reference to evidencing impact;
- Attendance at an Ofgem seminar in January 2018 to better understand the regulator’s expectations during the next price control period;
- Identification of ‘good practice’ examples from within network company’s existing engagement practice;
- Identification and preparation of 8 case studies: selected both to deepen understanding of the regulatory model being suggested by Ofgem and illustrate good practice in other sectors to inspire future innovation;
- An analysis of evaluation criteria in use within the sector to develop recommendations that would support a consistent framework for engagement planning and evaluation;
- A workshop with staff from Citizens Advice and advisers from Sustainability First to focus the analysis within the evolving context of preparations for RIIO-2.
What were the outcomes?
The report produced for Citizens Advise provides a comprehensive assessment of current engagement practice within the energy network sector in the UK, highlighting that there is a higher level of engagement than might first be expected. The report however also established 13 recommendations for Ofgem, Citizens Advice and Network Energy Companies which would strengthen the opportunity for the ‘voices’ of consumers to be effectively heard within this industry context
This report has been heavily drawn upon by Citizens Advice to inform their response to Ofgem’s consultation on the framework for RIIO-2 – with many of the recommendations made included directly.
There has also been considerable interest from Energy Network Companies, particularly those interviewed during the research, in learning from the conclusions and recommendations made in the report.
Involve’s report has been published alongside Citizens Advice’s response to Ofgem’s consultation on their expectations for RIIO-2 here
To see how the Citizens' Advice has used the report click here