Expectations of DNOs & Willingness to Pay for Improvements in Service

Stage One Presentation – Qualitative Research

November 2007

Agenda

• Research Background– Objectives, Method and Sample– Context and Sample Differences

• Role of Electricity and Service Experiences – DNO Awareness– Power Cuts– Voltage Issues

• Service Attributes– Review of existing GSPs– Environmental and Social Issues

• Willingness to Pay (WTP) for Improvements to Service• Summary and Next Stage• Appendices

Research Background

• Objectives, Method and Sample• Context and Sample Differences

Comprehensive Research Programme

Stage Two

Quantitative Research

• Providing measurement• Relative service priorities• WTP data

Stage One

Qualitative Research

• Exploring relevant issues• Understanding how Consumers

think and feel • Providing necessary context

Stage One: Qualitative Research Objectives

• Understand Consumers’ expectations regarding DNO service

• Explore current experiences and satisfaction with quality of service in relation to:– Power Cuts– Voltage Issues– Communication with DNOs

• Understand key priorities and areas that Consumers value– Ascertain reasons for and factors driving areas of importance– Understand willingness to pay for improvements e.g.

undergrounding, cross subsidisation

• Explore GSPs– Awareness– Understanding of the GSPs– Review detail

• Provide context and direction for the quantitative study

Methodology and Sample

16 discussion groups 16 face-to-face depth interviews

• Urban and Rural• Domestic Age – Older (40+), Younger (<40)• SEG – Lower (C2DE), Higher (ABC1)• Business Size - Based on usage/annual cost: Small < £15,000;

Medium £15,000 - £159,000; Large >£159,000

• 8 with Domestics• 8 with Small Businesses

• 8 with Large Medium Business • 8 with Vulnerable Customers (In-Home)

Locations

Glasgow (Urban)

London (Urban)

Edenbridge (Rural)

Gloucester (Rural)

Cardiff (Urban)

Manchester (Urban)

Romsey (Rural)

Tong (Rural)

Urban and Rural spread across eight locations

Deliberative Process

• Spontaneous discussion about Electricity service

• Explanation of the Energy Chain

• Responsibilities of the Distributors

• Proportion of the bill that goes to Distributors

Short, simple pictorial presentation given near the beginning of each workshop to educate customers about the DNOs role

Key Contextual Issues

Seven key issues impact on response to DNO service expectations and WTP

Negativity around pricing

Low Involvement marketplace

Increased/ Stealth Taxes

Green = Populist Issue

Automated Service

Over complexity of Market

Fat Cats

Sample Differences – Location

Acceptable

Poor

Overall, even in rural areas where there was some experience of Power Cuts/Voltage Issues, service was acceptable

Urban

Service

Rural

Service

Sample Differences – Business Customers

• Hospitals, manufacturing, schools• Multi sites• High voltage• Own transformers• Back up generators• Direct contact with DNO

Greater reliance on computers since previous study amongst all businesses

• Service businesses eg cafes, offices• Single site only• Needs = more straightforward/similar

to domestic• BUT still focus on potential for loss of

earnings• Less awareness/contact with DNO

Lower Dependency Higher Dependency

All Business Customers reliant on electricity and directly translate loss of power into loss of £

Differences are more about energy dependency/high voltage needs than size of business

Role of Electricity and Service Experiences

• Electricity Issues and DNO Awareness• Power Cuts• Voltage Issues

Current Issues with Overall Electricity Supply (1)

General sense of ‘it works’ and that’s good

However, continuous supply = hygiene factor

Doesn’t create satisfaction if it’s working but creates dissatisfaction if it doesn’t

• Bill shock• Increases in prices• Complex pricing• Comprehension issues (variable with

different suppliers)• Estimated vs. Actual Meter readings

Current Issues with Overall Electricity Supply (2)

• Confusion with changing suppliers

• Short term offers vs. longer term transparent deal

Customer Service

Billing issues Switching Suppliers

• Poor response (phone just rings)• Problems getting through to the

right department• Never read the meter

• Few unprompted mentions across sample

• Businesses with experiences of voltage issues/fluctuations

Power Outages/ Voltage Issues

Once pushed, Supply side issues dominate Customers’ mindsets – mainly Neutral-Negative response

Current Issues with Electricity Service (3)

“I have just switched and there was various incentives that haven’t materialised and

they have sent me a bill although they have taken the

direct debit but won’t be reading the bill for 6 months

“ Manchester, Domestic

“I think so many people apart from myself, there’s

been so many elderly people get so stressed out with this

extra billing and they’re suicidal half of them, you

know what I mean, they just can’t cope with it. I can’t.”

Gloucester, Domestic

“Customer services, I have been mucked about on the phone. I have called before and asked to be put through to somebody else which they are supposed to do but then the line went dead” London,

Domestic

Customer Service

Billing issues Switching Suppliers

Power Outages

“As long as it works it doesn’t matter. For us it’s a basic commodity. We turn on the tap, we turn on a light. Our main concerns is when we do

have a problem and our main problems are billing or outage. As long as we get communication and we’re told what’s happening and we

can speak to somebody, not speaking to a machine or something.”

Small Business, Gloucester

Awareness of DNO Brands

• Very low awareness of DNO brands

• Domestic and some business unaware of Distributor existence

• Minority of Business customers had experience and therefore some knowledge

Current DNO profile = minimal

Potential to raise awareness and create positive associations with the DNO ‘brands’

• Vans = prompt some awareness

Minority of Business sample had contact with DNOs

Involvement with DNOs

• Set up/Installation stage – equipment/machinery that requires

higher voltage – installing transformers– creating direct links to sub-stations

• Technical advice – overloading or underpowering

In the Past Now

• Ongoing contact

• Direct links in times of outages

• Stronger sense of relationship

Where to Find DNO Details

Three key sources of DNO details

• Yellow Pages

• Emergency page at the front of the book

• Under ‘Electricity’

• Look up Supplier

• Google/Search Engine

• ‘Power Cut or Electricity Supplier’

• Although aware that this may not work during Power Cuts

• Contact Supplier – ask for details– ask to be transferred

• Look at back of bill

DNO Responsibilities (1)

• Continuity of Supply

• Safety

• Maintaining the voltage

• Restoration of storm damage or problems

• Providing advice for Business

• Maintain sub stations

• Modernise the network

• Plan for events

• Develop contingency plans

Majority focus on present tense Rural and larger Small Businesses more thoughtful about

future DNO Responsibilities

Present Tense

Future Focus

Environmental Responsibilities

Pro-active Communication

DNO Responsibilities (2)

“Yeah. But I would hope that there would be some form of strategic

review going on at the power stations themselves. What sort of flood precautions have they got? Is it a couple of sand bags. I’ve heard stories that you have to

have a couple of sand bags and that’s your strategic defences.”

Small Business Gloucester

“Maintain the equipment that is out there, and invest in the infrastructure to supply

businesses, in a proper and efficient manner. There’s always

new technology coming on board, they should be putting some of that 25% back in to make that

equipment more efficient.” Small Business, Manchester

“Yeah we had a big one during the floods. But I mean

that’s outside. But there again should it be? One

could ask that strategically they were not geared up for even that one in 100 year

event.” Small Business Gloucester

“We’ve not had a power cut, or surge. It’s like you were saying,

I’ve kind of taken it for granted. I would hope that a long time before we had this conversation that they already were thinking about this green issue. Forward thinking.

They are far more aware than we are, I’d hope that they would be on top of everything.” Small Business,

London

DNO Performance

• Lack of communication (during power cuts)

• Lack of pro-activity• Poor customer service –

new project set-up

• Low incidence of problems• Minimal disruption during bad

weather• React well to unforeseen

events eg flooding, landslide• Relentless attitude to fixing• Visible investment in

infrastructure• Good response to queries

+ve -ve

Largely positive comments

Customer service issues drive negative comments rather than inefficient performance (for majority)

Power Cuts

Experience of Power Cuts

Overall, low incidence of memorable Power Cuts and strong sense that things have improved over last 3-5 years

Occasional

Frequent

Never “There were quite a few of them about 20 years

ago.” Business Gloucester

Majority of sampleUrban and Rural

Definite MinorityFrequent or Infrequent Significant Cuts

Never/Occasional

“That’s the first time I’ve had one in 4½ years. But I have woken up in the morning and found that the clock was flashing”. Glasgow, Domestic

“I have lived at my house for 3 years and haven’t had any” London, Domestic

“We’ve had minor ones but it will be minutes rather than anything really.” Kent, Domestic

“It’s certainly a lot better than it used to be I believe. We don’t experience them” Gloucester, Small Business

“You can’t fault the actual supply.” Cardiff, Small Business

“There are a lot less now than there used to be. When I was a small boy…but I can’t remember the last we had here. We haven’t had one at work.” Small Business, Manchester

“Where I live in Romsey it seems to be particularly prone to power cuts, it seems to be something with the ring that I’m on.” Domestic, South

“I remember as a kid we had them all the time and we had candles. Now we don’t need to have the candles”. Tong, Domestic

Similar comments across Urban and Rural locations

Impact of Power Cuts (1)

As with the previous study, range of emotions from mild to major across sample

Romantic

Life ThreateningInconvenient

Frustrating

For most, low experience of Power Cuts means mild frustration vs. anything stronger

Impact of Power Cuts (2)

Romantic

Life ThreateningInconvenient

Frustrating

• Experience of some Businesses = more negative

• Higher frequency OR low frequency, significant cuts can have considerable impact

• Worst case – 15 each year for 15 minutes or more (Tong)

• Sense of declining service for small minority

• Lack of response to problems when they arise adds to frustration

What Contingency Plans Are In Place?

Contingency plans variable

Dependent on energy dependency and past experience

• Majority here

• More rural locations

• Domestic and business

• Minority here

• Higher dependency Business Customers

Causes of Power Cuts

• Act of God - Severe Weather• Trees falling on cables• Terrorist act• Customers’ old equipment/

fuses

• Problems with cables• Not managing power surges

etc• Rationing Supplies

General acceptance that some issues are out of DNO control BUT low tolerance with those caused by perceived DNO inefficiencies

Out of DNO Control Within DNO Control

“…act of God you can throw as much money as you want….it’s

not going to stop the wind blowing a tree over.” Domestic, Kent

Are People More or Less Tolerant?

Greater Tolerance Less Tolerant

Strong suggestion that infrequency of power cuts and severe weather events creates

higher tolerance level

“…they’re making a lot of money, they’re all huge, huge companies, I don’t think there’s any excuses

whatsoever…why haven’t they got these big generators…they know they’re going to have a bit of

roadworks going on .” Small Business, Kent

However, broader climate of high energy prices = customers are paying a lot for a service and

therefore it should work

Priority Action at Times of Power Cut

Critical to communicate that everything possible is being done to rectify the problem

1. Efficient restoration of supply

2. Proactive communication • Manage expectations - knowing when it’s coming back

on

3. Apology and explanation – Why did this happen?

4. Reassurance – What we are doing to make sure it doesn’t happen again

5. Compensation

Immediate priority is steps 1 and 2

Choices

Infrequent, Longer cutsFrequent, Shorter cuts

• Domestic customers prefer frequent, shorter cuts

• Inconvenience vs. anything more• You can plan for 4 hours• Wouldn’t even notice – at

work/kids at school/asleep• No need for pre-notification

Hypothetical choice - differences occur amongst Domestic and Business Customers

• Assuming some level of pre-notification

• Business customers prefer infrequent, longer cuts

• Enables them to plan• Organise staffing• Tie in with shut downs

Questioning caused concerns in some groups about energy rationing -Is this a strategy for the management and control of dwindling energy

resources?

Need to provide reassurance in quantitative

Voltage Issues

Voltage Issues

• Voltage issues fairly difficult for customers to identify

• Most unsure of whether they’ve ever had a surge or a dip!

• Isolated incidence of UPS purchase to regulate voltage

Not really a domestic issue – high voltage requirements can cause problems for business customers

Domestic Business

• Businesses have strategies to manage surges/dips• Monitoring equipment• Protectors/UPS

• Can be up to the limit of voltage• Part of business• Issue for minority e.g. hospital –

distressing for patients

Need to consider whether this is worth including in quantitative

Service Attributes

• Review of GSPs• Environmental and Social Issues

Review of GSPs

Overall Awareness of & Attitudes Towards GSPs

• Low awareness of GSPs and detail across the sample– Those with greater experience of Power Cuts vaguely

recall some notification for compensation (minority)

• Principle of service standards welcomed– Ensure that DNOs have targets– Strong call for penalties if standards not met reflects

lower level of tolerance

Low awareness of specifics of GSPs but more savvy customers recognised that some form of measurement would be in place

In order to promote greater transparency of DNO role need to work with Suppliers to increase awareness of GSPs

Principle of Compensation

Mixed response to compensation principle

Neutral/Against CompensationFor Compensation

• Self focused• Deserve compensation for

poor service• Resentment about high costs• Teach DNOs a lesson • Reduction should be

automatically applied to the bill

• Focus on bigger picture• Want DNOs to learn from mistakes

vs. focus on compensation• Sense that personal bills will

increase to pay compensation• Anti ‘compensation culture’

“If they are fined then they would want extra revenue

and that would come from us”

Manchester, Domestic

“Is that an automatic payment or do you have to fill in 101

forms and wait for an answer?” Gloucester, Domestic

Amount of Compensation

Even as a gesture payment, current levels are

unacceptable for Business customers and create

negative feelings

For domestic customers responses are more varied BUT if framed in context of personal insurance and bill

size then acceptable

DomesticBusiness

Significant differences in responses from Domestic and Business customers

Test alternatives for compensation for Business customers – drop altogether, change to tailored system

Compensation vs. Penalties

• GSP wording currently lacks clarity about compensation/penalties

• Unclear that DNOs are penalised if standards are not met and incentivised when they are met

• Current interpretation is that the onus is on the customer to claim and if not then DNOs are ‘in the clear’

• Customers need to understand that DNOs will be fined for poor performance and therefore have a deterrent

• BUT also to communicate the form these fines take as there is currently a misconception that it is monetary fines to Ofgem, and a distrust in the regulation system as a result

General feeling that compensation across GSPs needs to be automatic – this will directly benefit the customer and act as a

‘penalty’ to DNOs

GS2:Restoration of Supply (Normal Weather)

Should this be covered?

Specific Detail

Compensation

• Yes – most important aspect

• Strong rejection of 18 hours • Much too long• No justification for 18 hour length • Sophisticated equipment = find faults easily• Lacks sense of urgency• Low tolerance in these circumstances• Expect DNOs to have contingency plans in place• 6 hours = optimum• Test: 4-18 hours

• 3 month time limit = prohibitive• Initial £50 for domestic OK• Then concern that lesser payment for extra 12 hours• £100 for Business customers rejected• Insulting/laughable- Test: £50 initial, then £50 for every 12 hours,

proportion of bill, individual contracts

GS2: Need clear definition of normal weather, test reduced lengths of time and frame compensation within context of gesture payment

GS11:Restoration of Supply (Severe Weather)

• Yes – most important aspect

• 24 hours = acceptable• Feels quite short in examples given eg flooding,

Boscastle• Especially compared to GS2 – 18 hours• Far greater tolerance in these circumstances• Lightening feels shorter term/less severe• DNOs should prepare for severe weather scenarios • 24 hours = optimum• Test: 12-48 hours

• £25 feels extremely low• £200 maximum = ok for domestic• Business issues as before

GS11: Show pictures of various types of severe weather with explanations, test longer times to create differentiation between

normal and severe

Should this be covered?

Specific Detail

Compensation

• Yes • Provides cover against frequent Power Cuts

• 3 hours/4 times a year • OK for domestic customers who favour shorter, frequent

cuts• Frustrating and disruptive for business customers• Can take time to process as they are not experiencing

multiple interruptions• Should be in any 12 month period - why April-April?• Provide reasons why frequent Power Cuts may occur

• Need to say £50 per year• Low for domestic and business customers• Ongoing problems require greater compensation –

increased frustration

GS2A:Multiple Interruptions

GS2A: More explanation would be helpful, test compensation issues

Should this be covered?

Specific Detail

Compensation

• Yes – important to provide advice where possible for maintenance

• General consensus is 2 days is not long enough• DNOs must know in advance so provide as much notice

as possible• Via Letter through the door

• Businesses request 2 weeks• Changing date = extremely frustrating• Poor business planning• May make alternative arrangements• What would be reason for this change?• Test: 2 days, 7 days, 14 days

• Why only 1 month time limit?• Helpful if standards are consistent• Amount of compensation seems v. low• Avoidable situation so compensation should be higher

GS4: Test new timeframe, test higher compensation levels

GS4:Notice of Planned Interruption

Should this be covered?

Specific Detail

Compensation

• Yes

• Split between Domestic and Business• Positive response to 2 hour time band from Domestic

customers• Better than other service industries say am or pm• Business customers expect a dedicated appointment slot• Big frustration when appointments not kept• Would require an explanation• Test: appointment, 2 hours, am/pm

• £20 feels low for Domestic and Business• Domestic customers take day off work so require

better compensation• Business customers reject £20

GS8: Test alternative timings for business customers, test higher compensation levels

Should this be covered?

Specific Detail

Compensation

GS8:Making and Keeping Appointments

Is There Anything Missing?

• Continuity of Supply

• Safety

• Maintaining the voltage

• Restoration of storm damage or problems

• Providing advice for Business

• Maintain sub stations

• Modernise the network

• Plan for events

• Develop contingency plans

Cross matching the GS against spontaneous DNO responsibilities highlights importance of modernisation/investment of network,

environmental issues and development of disaster plans

Present Tense

Future Focus

Environmental Responsibilities

Pro-active Communication

Environmental and Social Issues

The Environment

Hot topic – expect DNOs have strategies in place

• People know ‘Green’ is an issue

• Majority of Domestic customers and Business customers claim they are doing something– Changing machinery– Investing in standby equipment– Turning lights off– Turning off standby– Recycling

Whilst they see this as important for DNOs, limited WTP to support this

Rotate WTP questions in quant so environment not always last

The $15 million question……..

• Everyone recognises they ought to say yes

• BUT personal/business strategies in place to offset carbon

• So give me the Generator– “Because I run a business, sorry I don’t run a green society, I run a

business that employs lots of people and makes money.” Large Business, London

– “Give me the generator” Manchester, Domestic– “Generator all the way” London, Domestic– “I’d go for the generator as well. My Small Business is…the main

thing I want it on for the Small Business. Home is important obviously with the Small Business is important.” Cardiff Small Business

In the event of a Power Cut, would you rather be back on immediately using a generator or wait for a while and be

‘greener’

Views On Undergrounding

• Improvements in safety (hidden stops cancer)

• Prevents problems eg cutting through cables

• Reduce maintenance

But it’s not felt to be a priority

• Cost

• Short term disruption

• Ongoing maintenance

ConcernsBenefits

Broad consensus that replacing existing infrastructure with Underground cables is sensible

“Would that cause our bills to go up? If it would then no I don’t – I

can live with that eyesore if it means electricity stays cheap.”

Cardiff, Domestic

“My Aunty lives right under a pylon, in the middle of the country,

in the Yorkshire Dales, you can hear the electricity, the crackling. I don’t want to live anywhere near one of those.” Small Business,

Manchester

WTP for Undergrounding

20p is not considered a lot of money Feels a reasonable contribution

BUT only 1% of cable – customers feel it will take forever to achieve

For the quantitative, consider expressing in monthly terms – consistent with others and more understandable

In previous research people told us that they would be willing to pay an additional 20p per annum for every 1% of existing overhead cable that was put

underground in national parks and other places of outstanding natural beauty

Cross Subsidisation - Urban Argument

As with previous study, majority of Urban customers adopt fairly selfish attitude to cross subs

“We don’t care if the railway system in Scotland is down

as long as the London transport system is running and if we have to pay more

for that then i want it to go on to London transport” London,

Domestic

“Selfishly I wouldn’t give a damn,, I don’t think I would enjoy paying for

other peoples pleasures in rural areas.” London Large Business

Willingness to Pay

Overall on WTPNoticeable shift since previous research with strong

barriers to increased bills

• Lack of trust in industry – too many layers

• Unsure of where the money would go

• Energy costs are too high anyway

• Investment from DNO profits

• Everything gets put on the Customer

• Need for supplier contribution

-ve Barriers +ve Barriers

• No need

• Electricity supply = fine

• Have back-up plans in place

• Why would we pay more for something that is acceptable?

“They are making a lot of money and I don’t want to have to pay a penny more otherwise they will be milking me and they already make millions and millions “

Domestic, London

“If you were talking 15 or 20 years ago then maybe but we

have moved on and things should have been updated so it doesn’t happen as often” Tong,

Small Business

Business levels feel ok for quantitative but domestic ceiling = £3 pm Prices need to be tested in the context of persuasive arguments

4% not out of the question for

Business customers £1.00 for Domestic

customers

£0

£5

£0.50p

£2.00

4%

2%

3%

Scale of WTP

Rejection of WTP is based on principle rather than £ / % amount

Once pushed, some acceptance at amounts tested

Arguments for WTP

• Guarantee that money will be spent in their areas

• Highly visible investment in infrastructure

• Investment in Underground Cabling

• No alternative - Non investment = meltdown in 10 years time

• Moving to rural areas

• Experience of increased or significantly long power cuts

• More severe weather forecasts

• Cost increase is lower than potential loss of productivity

• Increased dependency

Raised DNO profile may support acceptance of WTP via sense of understanding and worth

Some Business customers who consider loss of power in terms of loss of £ can be persuaded

Minimum Expected Service Requirements

• Freephone number

• UK Call Centre

• Personal OR Up to date Recorded message

• Length of time getting through – 5 rings

• Not being passed around

• Efficient resolution of problem

• Information is accurate

• Staff are polite, well informed and willing to help

• Proactive call backs if power is not restored within dedicated times (Higher dependency customers)

• Text update (Domestic customers)

Customer Service hopefully = last resort. Secondary to core business focus of investment in networks

Conclusions and Way Forward

Qualitative Summary• In general, incidence of Power Cuts/Voltage Issues infrequent and service =

very good across sample types– Minimal differences in urban/rural satisfaction– Higher dependency businesses = more specialist issues

• Awareness of DNOs limited and opportunity to increase profile – Provide consumer confidence in network investment– Longer term may support greater WTP

• Awareness of GSPs limited but principle of standards is important– Scope to amend detail on some

• Potential to include new incentives on future investment in infrastructure, environmental targets and communication guidelines

• Compensation creates negativity amongst Business customers thus need to review compensation and penalty system

• Stronger qualitative barriers to WTP than previous study– Sceptical about efficiency of spending– Question the need – efficient service already

Way Forward

• Final qual report by 3 December

• Draft questionnaire by 21 December

• Pilot conducted by 18 January

• Main stage conducted by 21 March

• Final project report by 16 May