Npower’s annus horribilis

2013 was not a great year for the company that had vowed in January to rid itself of the customer satisfaction problems that had plagued it for years, as Mathew Beech reports.

Rewind to January 2013. Confident and smiling, new Npower boss Paul Massara commits himself to making his company number one for customer satisfaction. That’s a big promise in the face of rising energy bills and widespread customer dissatisfaction with utilities. Twelve months later, Npower is bottom of the league of the big six, with spiralling customer complaints, a bruising row with the regulator, and a parent company that has bigger issues on its mind. What went wrong – and what will Massara do next?
Things reached a low point last month, when Massara was compelled to write to the firm’s 3.4 million customers, begging their pardon for a record-breaking poor performance that saw complaints increase by 25 per cent.
This came at the end of a torrid year for the supplier. The customer complaints fiasco and billing woes came on top of a £3.5 million fine from Ofgem for mis-selling, the offloading of 770,000 customer accounts as the company got to grips with sweeping reforms in the energy market, and the shelving of the Tilbury biomass project because of “difficult market conditions”.
Meanwhile, on the Continent, parent company RWE is struggling with tumbling profits and a share price that fell from a high of €39.90 in January to a low of €20.80 by the start of September, ending the year at €27.69.
Npower’s customer experience problems stem from a new billing system that replaced three separate regional systems. Teething problems resulted in some customers not getting bills for up to a year, while others received inaccurate bills or bills for accounts that weren’t their own.
Massara’s letter in December apologised for the poor customer service, but asserted that “good progress” had been made in resolving the issues, which Npower has said should be completely resolved by the spring.
The billing switchover no doubt contributed to the number of complaints per 100,000 customers increasing to 253.1 between July and September last year – up 25 per cent on the previous quarter – and more than three times higher than the next big six supplier, EDF Energy, which recorded 74.2 complaints per 100,000.
Despite the growth in complaints, Roger Hattam, Npower’s director of domestic retail business, said the company’s priority is to resolve the problems – it has 800 extra staff working to resolve the issue – and that it is still targeting the top spot in the consumer satisfaction polls. He added: “We’re looking at every single thing we do – and we’re changing our processes, our systems – and the very culture of Npower. It’ll take time but it’s time to take a fresh look at Npower.”
Npower made some strategic moves last year, too. It sold 770,000 customer accounts to Utility Warehouse in November for £218 million. The sale was prompted by Ofgem’s Retail Market Review proposals, which limit the number of tariffs suppliers can offer.
As part of the deal, a 20-year wholesale agreement was struck, a canny move for Npower, which has guaranteed itself custom – and income – from these customers for two decades, without having to deal with those messy customer service issues.
That £218 million will come in handy. RWE, Npower’s parent company, is having a difficult time financially. Its UK generation arm – which since the start of the year has formed part of the Europe-wide RWE Generation – recorded a £59 million loss for the first nine months of 2013. The third quarter interim results highlighted the “significant reduction in operating result”, due to “unfavourable market conditions, particularly for gas plant”.
This has resulted in 6,750 jobs being shed from across Europe as part of an efficiency drive designed to save more than €1 billion.
In November, RWE chief executive Peter Terium outlined plans to “shed whatever we do not need in order to continue running our business successfully”. Could this include Npower? There have been mutterings in the City of a potential sale – as one analyst told Utility Week: “You do have to start to question just how committed they are to the UK market.”
But Npower has stamped on these rumours, saying RWE remains committed to the UK. Npower’s third quarter profits – up 8 per cent on the previous year at £175 million – back up the company’s line. The growth in retail profits was the result of increased energy use during cold weather at the start of the year.
One energy analyst put things in a global context, saying: “They are trying to sell the upstream oil and gas businesses first, so one assumes that unless there has been a radical change they would stick with the UK retail business.”
A cynic might say that RWE is unlikely to try to sell Npower because it would struggle to find a buyer. Either way, it seems the business is staying put, for the moment at least.
The new year is often heralded as a fresh start, but for Npower, the bad news has kept coming. The company kicked off 2014 with a bruising row with Ofgem and the Department of Energy and Climate Change (Decc). Ofgem described figures Npower used in its Energy Explained report – in which the supplier hoped to show that suppliers are not responsible for most bill increases – as “inaccurate and misleading”, and Decc said the report was “misleading on so many levels”.
Npower was forced to back down, admitting one of its figures was out by around £15 per customer.
Massara was due to talk to Utility Week for this article, but the interview was cancelled. Perhaps he had other things on his mind.