Contestability was introduced across C&I customers in NSW and Victoria starting with the largest energy users in July 1998; Queensland and South Australia followed a couple of years later. The impact of C&I customers being able to choose an electricity retailer has had some interesting phases and differing focuses as the C&I customer-retailer relationship has matured. Increasingly customer expectations have become more sophisticated, so much so that now customers often rely upon brokers and consultants to help them to not only decide on which retailer to go with but also to manage their electricity contract. In the sections below is a description the phases of contestability we have seen.

Prior to Contestability

Customers at this point had no or limited awareness of retailers as customers only needed to know about the retailer they were currently using. Customers may have felt at this time uncertainty in regards to what price they will be getting once contestability commences, unsure how to go about entering the market (i.e. how should they contact other retailers, or who are these other retailers?). Customers often felt that, at least until things settle down, it will be safer remaining with their existing retailer.

At this point customers wanted information and assurance on:

  • Timelines of the deregulation process
  • Understanding of what their options are in terms of contracts, tariffs etc.
  • On pricing and an explanation of new billing,
  • How the market will operate
  • Access to someone they can talk to e.g. account manager

Early phase of Contestability

Once contestability was introduced retailers markedly increased their marketing activity, aggressively discounted their prices and focused on sales rather than customer management. UMI was benchmarking customers right from the beginning. Following are some excerpts from these early reports. Customers began to “shop around” and become more aware of their buying power and due to the greater marketing effort by retailers become better able to differentiate between retailers. Many customers however were confounded by complex decisions relating to:

  • How to test the market e.g. via tender, broker, direct with retailer etc.
  • What to do about multiple sites
  • Whether to switch to a competitive contract
  • How the market will operate
  • Confusion around the differing roles of the retailer and network supplier

Settling in

The empowerment of the contestable electricity market starts to recede as customers are exposed to increasing pool prices and tightened risk management. Customers are becoming frustrated as the price differentiation between retailers becomes minimal. This resulted in greater awareness of the administrative burden and costs associated with tendering and managing multiple retailers. Many retailers cut back on customer service, relying more on call centres rather than account managers to manage C&I customer relationships. There is confusion around the division of roles between retailer and network provider. It is not clear cut to many customers who to go to when there is an issue with supply. The separation of the network and retail businesses is a continuing source of annoyance, particularly so in NSW and Queensland because at this point the retail and network divisions are shared organisations but has Chinese Walls (e.g. as in the case of Country Energy, Ergon Energy etc.). Businesses value uninterrupted supply - even though they ‘understand’ it is not retailer’s fault, they say they want reliability above all from their retailer. Customers increasingly question the value a retailer actually provides. Issues included:

  • Having contact with a retailer only through a call centre
  • The task of dealing with multiple bills from multiple retailers which do not fit customer billing systems
  • Retailers lacking a real understanding of customer business and energy needs

In this context, continuity of relationship with a retailer takes on greater importance. Many have ‘tested’ the waters with a new retailer and found the experience to not be as good as they hoped. Many have returned to their ‘original’ retailer in their home territory where they believe their supply will be better managed and they sense that they “understand us better “. Customers begin to want more than just a “billing service” from their retailer, they want a relationship.

As the market becomes increasingly more complex, the relationship with the account manager becomes of greater importance.

Maturation

The level of differentiation between retailers once again became smaller, as all retailers lift their game in terms of customer management. Focus shifts from gaining sales to retaining customers. Mergers and acquisitions in the market unsettle loyalty to retailers. Services previously seen as value added are increasingly seen as standard e.g. electronic billing and consumption data, face to face visits.

There is a sense of apathy however as customers feel that “all retailers are the same anyway”. There is fatigue in changing retailers. Unless the customer is unsatisfied with their retailer, the tender process becomes more about ensuring the incumbent retailer is offering a competitive price than switching for no reason.

Many customers come to view retailers as not fulfilling their business needs and look elsewhere for solutions .To fill the gap brokers and consultants are heavily relied upon to make energy decisions. Energy management specialists are used rather than turning to their retailer for help with energy audits, power factor correction, etc.

Sophistication

Amidst the turbulence of price volatility and climate change, no retailer in the market is perceived as delivering what major customers need. It has irrevocably changed the needs and responsibilities of major buyers. Market conditions highlighted risk and increased stress on decision makers. It is consultants and brokers who are meeting the new sophisticated customer needs; then leveraging their relationship to change the buying process of C&I customers. The widespread use of consultants in turn has ‘raised the bar’ – buyers expect a greater level of professionalism. Specifically:

  • Provision and interpretation of market information,
  • Assistance with sustainability issues
  • Consulting frameworks / methodologies and structured processes,
  • Flexible pricing solutions.

Customers sense that they are ‘leading’ the retailers and perceive the relevance and capacity of retailers to add value is diminishing. Customers perceive a “downgrading” of the Account Manager role because account management skills have been downgraded to customer service only – many feel they are unable to provide advice or information to help them.

De-Valuation

Increasingly there has been a downgrade, at least from the customer’s perspective, in terms of the role their retailer plays in their energy management. With such consolidation of the market that there are now only a few major players (AGL, TRU Energy, Energy Australia and Origin Energy) on the eastern seaboard, many customers sense that they are just a number on their retailer’s books and that retailers have become a billing service only. Major retailers are perceived to be more focused on re-structuring and integrating their own organisations after consolidation rather than focussed on the process of improving their services to customers. This comes at a time when with the introduction of a carbon trading scheme means businesses have a much greater need of support from their retailer for assistance with reporting, and data provision. Increasingly customers have turned towards consultants to assist with this.

Re-Valuation?

The most recent UMI results are pointing to a shift which we are calling, hesitantly ‘re-valuation’. This seems to have been triggered by the very apparent success of ERM Power in lifting the bar on customer satisfaction once more, back to levels that we have not seen in UMI for some years. This graph illustrates.