November 17, 2017

Lessons for an Open Water Market

The Water Market is undergoing fundamental change this year. If you’re not aware of this, that doesn’t matter, as I am going to talk about the changes in detail, but I’d encourage you to look here for further information.

So, what is actually happening? Since April 2017, any non-domestic water customer can switch water supplier (previously, most had no choice) and, in the near(ish) future, domestic customers will be able to do the same. According to MOSL, customers are utilising the introduction of competition, with over 36,000 premises switching water retailer in the first 3 months of the water market opening[1]. Utility Week also notes that many more have “…contacted their existing water retailer to discuss the services they receive or negotiate a better deal”[2]. These numbers show that competition is working and choice is slowly being utilised by customers.

Despite the initial surge in engagement in the water market, albeit currently with limited cost savings (circa £6/year) – so maybe the incentives are an issue- over time there are no guarantees that the number of engaged customers will rise. At present, only 40% of Electricity customers in the UK have switched suppliers in the last 5 years, despite much higher potential savings and huge commercial/Governmental encouragement to do so…

Competition can mean many things to different people (I won’t go into this right now) but, put simply, competition enables suppliers to compete for customers and vice versa, assuming Adam Smith was right that is…. The overall aim of competition in a ‘free market’ is to generate fair prices for customers via price competition between suppliers.

Whilst ostensibly competition is driven by allowing suppliers to compete, successful competition (measured by high engagement by consumers) requires more.  Whilst permission for suppliers to compete is the first hurdle, a competitive market, which works well for both suppliers and customers, is not always a guaranteed outcome. Maybe that’s where we can help?

ElectraLink was created in 1998, a year after deregulation of the Electricity and Gas markets took place, to provide an independent, secure and low cost-service to transfer data between organisations in the deregulated UK electricity market.

The data-driven opportunities and challenges that we, and the sector, have faced, can be combined into five key ‘lessons learnt’ which are outlined below.

Lesson #1 A competitive market is underpinned by data?

The latest buzzword in the energy industry is ‘big data’ and there’s a reason for that – effective management of data is critical to competition.

As a new supplier, when you take on a customer you need to know a several things about them to ensure the best service provision. This includes: What meter they have; who owns the meter (it isn’t always the existing supplier); where the meter is and whether they are in debt. The list is by no means exhaustive.

Structured data transfer facilitates business-critical processes, including: Settlement; change of supplier and metering. Defining the data content and data transfer requirements for market participants ensure that all relevant information is provided to the relevant parties within given timeframes. ‘Relevant parties’ doesn’t just mean the supplier, it is provided to anyone who needs to know who the supplier of that meter point is (e.g. DNO).

In 1997, the Electricity market established how to structure data provision and this mechanism (through the help of the MRA and ElectraLink) has subsequently enhanced competition.

In 1997, the industry worked together to establish mandatory standards ensuring a minimal standard of information is passed between suppliers at every change of supplier event, ensuring that critical processes are not hindered by competition and also created a data transfer mechanism in the form of the Data Transfer Network (DTN – as provided by ElectraLink).

Where this has not worked as successfully is within the gas market, where data transfer parameters have not been clearly defined. As a result, some participants, such as Gas Transporters, do not receive information that is critical for their business processes slowing down business processes significantly and requiring frequent interventions to retrieve essential data.

Data issues can increase the time, cost and resources required to switch customers, as new suppliers are required to actively seek key customer information through old supplier or new customer contact or customer visits. The consequential higher service costs increase consumer prices, potentially reducing customer engagement regarding switching.

Moreover, if the process becomes too cumbersome for customers, either through a slow switching process or an appointment required to switch, engagement in switching will reduce.

If engagement is low and costs are high, the cost/benefit of opening the market to competition is undermined. Reducing the time lag and increasing the reliability of switching is underpinned by data and this should be a focus for the Water Market.

In the Electricity and Gas market, data is a fundamental aspect of the faster, more reliable switching programme and will continue to define the programme’s effectiveness; many lessons on how to establish effective data transfer can be learnt from this programme.

Therefore, Lesson learned #1 is; defining all critical data requirements for business processes to ensure that business critical data is not lost through competition.

Lesson #2 Thinking about your legacy?

When people talk about legacy data, they are referring to any data that hasn’t been updated in a while.  A primary issue with legacy data is data quality. With legacy data, you can’t always guarantee that it is correct, or sometimes, even present, as it hasn’t been checked or updated in a long time. For historical data, there may have been human errors on the initial data entry or the definition of ‘acceptable’ or ‘required’ data for that data item may have changed over time, resulting in incorrect data. Even if data requirements are defined when you open the market up to competition, legacy data issues can cause business processes to fail on change of supplier, as incorrect or insufficient data may be supplied.

We’re seeing this issue materialise within the gas and electricity market, where 1.24% of customer switches are erroneous, with circa 50% of consumers erroneously transferred due to an incorrect address is in the system.  An erroneous transfer is when an energy supplier tries to take over a gas or electricity supply by mistake.

Legacy data issues are not simple to fix and are likely to generate costs for the industry. Therefore, we would recommend using existing companies (where possible,) to resolve legacy data issues. For example, some data collection agencies are supporting the smart rollout by performing site surveys prior to an installation; identifying potential data gaps (i.e. is the house occupied/does the area get signal) heralding an improvement of data quality and a reduction in appointment/job failures.

Therefore, Lesson learned #2 is that we would recommend highlighting important data items (as previously noted) and performing a quality assurance and, potentially, a ‘data cleanse’ to identify if there are issues with business-critical data, thereby allowing you to improve it before it impacts business-critical processes.

Lesson #3: Interoperability will improve customer outcomes?

Are you reinventing the wheel? Whatever issue you are facing, we recommend speaking to those with considerable experience; if you’re dealing with issues that have arisen in similar circumstances and looking to build a solution, you could save on cost by performing this process as a joint venture.

ElectraLink’s experience with managing the TRAS (Theft Risk Assessment Service) service, which assesses the risk of energy theft at consumer premises to help target theft investigations, has shown that producing a ‘one-size fits all’ approach and sharing cross-industry experience can herald substantial benefits.

Under TRAS, gas and electricity market participants worked together to identify trends in energy theft and use this knowledge to work with third parties to track and monitor households suspected of theft. Similar experiences and knowledge sharing could be used to tackle billing issues that result from incomplete information around ‘the occupier’ for water companies and vulnerable customers across all utilities.

Therefore, Lesson learned #3 is that we’d recommend working with the electricity and gas market to understand which processes do and do not work well and to share information, where possible, to avoid the replication of any problematic issues in the water market and ensuring the swift introduction of successful procedures.

Lesson #4: Unlock the value in data?

Whilst getting the right data is essential to making your business work, knowing how to effectively use the data will also help your business grow. Using the data available, such as which consumer groups are switching supplier, or which meters are failing, can help water companies efficiently design their strategic plans.

Our EMI data services translate raw industry data, transferred over the Data Transfer Network, into useable dataset suitable for speedy data mining, data analysis and market/business monitoring. Our EMI services have changed the way businesses work in the energy market. For example, working in partnership with Stonehaven, ElectraLink used DTN data to provide insight into Smart Meter installations to highlight and identify a range of trends in installation failures and thereby reduce the risk of smart meter installation failure.

EMI data has identified Erroneous Transfer (ET) trends and this will be used by industry participants to target key causes of ETs. Also, the EMI provision of switching and installation information to Meter Asset Providers (MAPs) has improved their understanding of where their assets are in the supply chain, subsequently improving their invoicing processes and providing greater revenue certainty.

Therefore, Lesson learned #4 is that we’d recommend understanding how to improve and use data to support existing and new business models within an ever-changing market arrangement.

Lesson #5: Don’t let perfect get in the way of good

When implementing change, everyone ends up in the same conundrum – You want to get things done quickly, but you also want to get it done right.

With any project, not letting perfect get in the way of good is key. Working on the simplification of the RGMA baseline (a document outlining some gas flow data requirements), ElectraLink found that aiming for the ‘perfect’ outcome (everyone agreeing on everything) delayed the project and ensured that the ‘good’ that we were trying to achieve was increasingly delayed, which ultimately affects the customers.

To avoid this, we would recommend setting realistic expectations and do not hesitate to take a phased approach to a change where you tackle the ‘must dos’ first. Moreover, a ‘majority-rule’ as used in most code governance structures, should help reduce one person blocking change.

Therefore, Lesson learned #5 is to be realistic and structured in your approach to change.

In summary…   

Get the data right; use the data to support the industry; work together and work smart. Simple really, when you know how…

Author: Rosella Jones, Industry Change Analyst (ElectraLink)

[1] http://www.open-water.org.uk/about-open-water/news/steady-start-for-new-water-retail-market-but-more-still-to-do/

[2] http://utilityweek.co.uk/news/thousands-of-business-water-customers-switch-in-week-one/1300322#.WYm4prpFxjm