End of DNO incentives risks ‘sub-optimal’ customer service

A lack of financial incentives for distribution network operators (DNOs) to improve service risks creating a “postcode lottery” which could result in “sub-optimal customer outcomes”.

That is according to Ofgem’s Stakeholder Engagement and Consumer Vulnerability (SECV) Incentives Panel, which has just published its final annual report.

As the incentive scheme draws to a close, after eight years, the SECV Panel’s 2022-23 assessment warns that “stakeholder engagement is not truly embedded across all DNOs, and certainly not to the same standard”.

It adds that while “it likely that several DNOs will continue to improve their approaches to engagement […] it considers it unlikely that this will happen in all cases” now that the incentive scheme has been removed.

The report adds that “this creates a risk of a postcode lottery” and questions whether “a lack of focus and reporting could lead to regression and sub-optimal customer outcomes”.

The incentive scheme was established eight years ago “to encourage network companies to engage proactively with stakeholders in order to anticipate their needs and to deliver a consumer-focused, socially responsible and sustainable energy service”.

Under the scheme, companies are marked out of 10 for their annual performance.

Scores below five are seen as a “weak” performance, with five “average”, six and seven “fair”, eight equalling a “good” performance, and scores of nine and 10 given to firms who demonstrate “excellent” stakeholder and customer engagement.

This year, four DNOs were given scores within the “fair” bracket (UK Power Networks, Electricity North West, National Grid ED and Scottish and Southern Electricity Networks), while Northern Powergrid and SP Energy Networks were both rated as “weak”.

In relation to Northern Powergrid, which ranked last in the assessment, the report adds that the “panel was disappointed in the submission […] in particular as parts of the report appeared to be muddled and not well explained”.

It adds that Northern Powergrid’s approach to customer engagement appears to be “reactive, rather than being proactive engagement”.

However, the assessment concludes that “there was a feeling that there were green shoots in the NPg submission […] and the Panel hope that the company is starting to understand the benefits of engaging with stakeholders and customers.”

It adds: “There were signs of engaging constructively with customers and stakeholders and responding to their feedback, for example to improve the connections processes. There also appeared to be greater collaboration with other utilities in NPg’s region.”

In response a spokeswoman for Northern Powergrid said: “We were disappointed with the outcome; we don’t believe it fairly represents the level of service we provide or our engagement with stakeholders across our region.

“We remain committed to having robust engagement plans, so we can listen and act on stakeholder feedback, and our highly valued fuel poverty programme which supports our most vulnerable customers. We also work in partnership with our independent Customer Engagement Group to continually deliver further improvements for our customers.”

In response to SPEN’s performance, the report states that “the submission lacked practical examples of how stakeholder engagement has, in practice, influenced business strategy and decision making”.

A Scottish Power spokesperson added: “Having performed well across our licence areas during the incentive period we’re disappointed in this result. SP Energy Networks is fully invested in its engagement and communications strategy to customers and stakeholders and is currently assessed to be in the top-tier of the recognised stakeholder engagement AA1000 Standard.”

Conversely, the panel praised UKPN’s performance, after the firm recorded the best score of all DNOs.  

It report adds: “The Panel was extremely impressed with UKPN’s […] submission which detailed an extremely mature, agile, embedded stakeholder engagement strategy that has resulted in a culture of outreach, learning, innovation and problem solving, focussed on tackling sector-wide issues and achieving benefits at scale.

“UKPN collaborates widely, both within and outside the sector, and delivers both as a leader and a ‘fast follower’.

“The Panel considers UKPN’s stakeholder engagement strategy to be sector leading, an example of what can be achieved with determination and focus.”

Ian Cameron, UKPN director of customer service and innovation said it is “humbling to be awarded first place for four consecutive years”.

He added: “Our sector is grappling with new and complex challenges which affect customers’ relationship with energy now and in the future. The cost of living crisis is putting customers under enormous pressure, and at the same time we need to deliver an energy network fit for a Net Zero future at the lowest overall cost. These challenges can’t be solved by working alone.

“The most effective way to drive change at pace is to engage to get the root of the issue and collaborate to take action – and that is what we have done. As electricity networks we came together over the last year like never before to share best practice and work together to tackle connections queues and make it easier for customers to sign up for extra support during a power cut.

“There is always more to do, but I am proud of how we and our partners have supported customers this year.”

He added: “After the SECV incentive, we have come a long way and we believe are ready for outcome-based incentives under ED2.

“The overall ED2 incentive package is designed to drive great customer outcomes right across the business – including customer service, major connections, support for vulnerable customers and a Distribution System Operator that puts customers at the heart of decision-making. All of this will help deliver better customer outcomes across Great Britain.”

Stephanie Trubshaw, Electricity North West’s customer and connections director, added: “We were incredibly proud of the work we put in to receive this year’s SECV score. It was a significant increase on the previous year and resulted in our highest ever score since the scheme was first introduced which was a fantastic achievement.

She added: “Whilst the scheme is now coming to an end, this won’t change things for us. To help shape our £2bn ED2 business plan we engaged with 18,000 individuals and organisations and throughout ED2 we’ll continue to engage with stakeholders as that’s fundamental to the way we operate.

“We’re already seeing positive results as earlier this year, we recorded our best ever customer satisfaction (CSAT) score and we’ll continue to set ambitious, challenging targets which will deliver on our promises to support our stakeholders and customers.”

Meanwhile, NGED director of corporate affairs Christopher Hayton called for DNOs to continue improving their performance despite the lack of an incentive scheme.

“The SECV incentive provided a significant step change in the depth of stakeholder engagement across DNOs, driving innovation and embedding stakeholders into the fabric of decision making at companies,” Hayton said.

“The incentive has led to real positive outcomes for customers, providing DNOs a focal point to drive this change through year on year improvements.

“Whilst the incentive has now ended, we agree with the SECV Panel that DNOs must continue the good progress that has been made. The ending of this incentive will certainly not diminish our ambition to collaborate, to engage, and to deliver leading customer service and customer vulnerability support to our customers.”