Are customer engagement groups the right answer for DNOs?

In RIIO2 Ofgem wants to pressure DNOs to deliver better value for money, and it thinks customer engagement groups are the way to do it.

As part of the RIIO2 price controls set out by Ofgem, distribution network operators (DNOs) are required to set up independently chaired customer engagement groups (CEGs). This, the industry regulator says, will challenge the business plans proposed by the network companies for the next round of price controls.

As well as the CEGs, Ofgem will establish an independent RIIO2 challenge group to look at plans proposed by the companies. This will operate in parallel with the CEGs.

The regulator has stressed that the CEGs will not be a means of identifying customer needs. Instead, they are there to hold companies to account on whether they have properly reflected local stakeholder requirements. But are they the best solution for customer engagement?

Water sector regulator Ofwat certainly seems to think so. Customer challenge groups (CCGs) in the water sector were announced well before the previous price control – PR14 – and have been around since the end of 2011.

Ofwat says the focus on customer engagement and outcomes was one of PR14’s “key successes”. It adds that CCGs have an important role in helping the sector achieve its long-term vision of “putting customers at the heart of the way companies run their businesses”.

In the gas sector, Cadent – which supplies 11 million customers across the North West, Midlands, East Anglia and north London – set up its CEG in June last year.

Zoe McLeod heads a group of 13 independent people from a variety of backgrounds to provide “independent examination and challenge” to Cadent on its upcoming business plan.

“It’s easy for companies to make promises that they will put customers and the public interest at the heart of their decision making, but our role as a CEG will be to ensure it genuinely happens,” McLeod says on Cadent’s website.

While it is still early days for CEGs in the energy sector, some DNOs have already made good progress.

Heading Western Power Distribution’s (WPD’s) group is Duncan McCombie, the chief executive of fuel poverty business YES Energy Solutions CIC and a man with a 30-year career in a variety of roles. He says WPD “understands the boundaries” of the CEGs and will not try to control things. He adds they are “very much supportive”.

McCombie, who sees the group as a “super-critical friend”, is optimistic about the work his team is about to embark on. “I think it’s going to make sure that customers can actually influence the decisions because the representatives of the group will be making sure that customers’ thoughts, views and what they might be wanting in the future is also taken into consideration”, he tells ­Utility Week.

“It’s making sure the group ensures that the work WPD, or any other DNO, delivers actually has a value to customers. I mean that from a financial perspective, from an economic perspective, from an environmental perspective, but also from a societal perspective.”

Independent scrutiny

Ofgem says a key feature of the groups is that they are independent, both from the companies and from the regulator. This, it claims, means the groups can offer “robust challenge to company proposals, and their views can help us to understand the extent to which the business plans reflect and will meet the needs of stakeholders”.

Independence from the operator will be seen as a welcome move by some because it means the groups can work without outside influence.

At the time of writing, WPD has so far provisionally recruited 11 industry experts to its CEG panel.

Although the DNO is keeping tight-lipped about who will feature, it has revealed the group will feature cross-sector specialists. “Every member has to have a foot in one or two camps, they need to know about regulation, but they also need to know about research,” says McCombie.

It won’t be an easy ride for WPD’s engagement group, which will have to work hard. “I’ve spoken to every single one of them and I have been very clear that there are some expectations I have, that is you can only miss one meeting up to 2023 because we need consistency. It is very much one strike and you are out. We need people who are dedicated to do the right job.”

One thing McCombie wants to avoid is an unwillingness to ask difficult questions, because from his experience chairs can often be reluctant to do this. “I would like this to be disruptive. I have chaired a couple of groups in the past, I watched chairs and how they operate and sometimes we don’t have the difficult conversations. I want to be very honest with WPD.”

McCombie is no stranger to groups such as this and brings experience from his time as a member of Welsh Water’s customer challenge group for PR19, playing a key role shaping the company’s plans at a strategic and working level.

Electricity North West (ENW) is also in the process of setting up its group. Both companies appear to be early leaders in the electricity distribution sector. Jeff Halliwell began working as chair of ENW’s customer engagement group on 1 January.

Halliwell, who also sits as chair of Anglian Water’s Customer Engagement Forum, believes it is “too soon” to say what the biggest issues are that are affecting energy customers at the moment. “It is important that we don’t come with any preconceived ideas about what the key issues are”, he tells Utility Week.

“It is for the company to discover that through its stakeholder engagement and for us to critique and scrutinise that. When we come to write our report, then the company should have a very clear view about that, and we will comment.”

Halliwell, who also serves as the chair of an equivalent group for Heathrow Airport, likes to draw parallels between his roles. As water and energy companies submit five-year business plans to their respective regulators, Heathrow does the same to the Civil Aviation Authority.

Four other DNOs, UK Power Networks (UKPN), Scottish Power Energy Networks (SPEN), Northern Powergrid and SSEN, all say they are setting up CEGs.

A UKPN spokesperson says: “We’re in the process of setting up a customer engagement group this year and are currently evaluating the range of skills and expertise our CEG will require to make sure it provides a strong, effective and valuable way of challenging us, as we work to develop a comprehensive plan that delivers for our customers in RIIO2.”

Meanwhile, SPEN says the company is “currently in the recruiting phase” for the distribution CEG chair. A spokesperson adds: “We are engaging with Ofgem and our chief executive to refine our shortlist of candidates ahead of holding any formal interviews.”

Outside the industry, groups such as Citizens Advice and the Energy Ombudsman welcome the move to bring CEGs into the DNO sector.

Matthew Vickers, chief executive at the Energy Ombudsman, says: “DNOs are doing some great work on customer focus at the moment and this Ofgem initiative will help to amplify the voice of the consumer. It’s important that we think of energy as a system with the consumer at its heart.

“Whether we’re talking about suppliers, networks, price comparisons websites or indeed ourselves as the ombudsman, we’re all part of a system that needs to be designed around trust and confidence in our ability to meet the needs of consumers.”

Similarly, Gillian Guy, chief executive of Citizens Advice, says she believes Ofgem is right to introduce them for energy network companies because the groups have worked well in other sectors. “Customer engagement groups have worked well in the water industry for the past seven years. It’s right that Ofgem is introducing them for the energy network companies.

“Forums like this should give households and small businesses a louder voice in shaping the way the industry is run. But they are not an end in themselves. They need to deliver benefits to consumers by ensuring their needs are at the heart of multi-million pound decisions about the future of our energy networks. It is the customer’s money they are spending after all.”

With experienced and enthusiastic chairs at their helm, CEGs are undoubtedly a force for good in the energy sector. Their independence should ensure they act as a platform for open and honest discussion about company plans for RIIO2.

The industry will certainly be keeping a watchful eye when the groups eventually publish their findings.