Power to the people

With the announcement from London Mayor Sadiq Khan that they plan on following Nottingham and Bristol Councils footsteps in becoming an energy supplier, we look at some of the considerations for any local authority looking to follow suit, and the opportunities and challenges they’ll face along the way.

The notion of a municipal supplier is common in Europe, and harks back to simpler times when the bulk of utilities sat under regional authorities. Leveraging community spirit and demonstrating the ability to put money, jobs and life back into cities and or regions holds a powerful appeal in today’s economic climate, and represents a real opportunity for local authorities to reassert themselves as a positive and proactive influence on their constituencies.

The notion of brand and reputation in relation to energy and local authorities is an interesting one, particularly given energy’s history as a publicly owned service. Just like the bins being collected or the streets being policed, keeping the lights on is a basic part of everyday life. But since the market deregulated in 1990 the government has been largely off the hook for energy, letting the privatised corporations take the brunt instead. The point here is that when local authorities take the reins again, the spotlight will be back on them. What’s more, because their proposition is distinctly different to the traditional retail supplier, i.e putting the public before profits, it’s highly likely that they’ll be under much greater scrutiny, and held to a higher standard.

The challenge facing municipal suppliers is therefore how these heightened expectations are managed, and what opportunities are available to strengthen and enhance their propositions.

One immediate opportunity available to municipal suppliers is brand identity. Recent Energy UK data has shown that of those that do switch supplier, just as many move from big 6 to big 6 as those that switch from big 6 to independent. One argument here is that there isn’t enough differentiation between the big 6 and the independents to make either a clear choice. This is where local authorities can stand out – their region’s history and culture immediately giving them a strong brand identity, and a uniquely different reason for customers to choose them; whether through a pledge of local allegiance, or an affinity with its grass root values.

Branding opportunities aside, municipal suppliers will face a choice between driving benefit directly back into their immediate communities, or price and affordability. Both approaches are already a reality, with Nottingham’s Robin Hood energy operating on a not-for-profit basis and driving prices in the area down by approximately £90, and Bristol focussed on building a core customer base within the Bristol area ahead of offering national tariffs. Time will tell if one approach has merits ahead of the other and there will be many local authorities watching both with interest, but whichever route you take, price and value will always be a key consideration.

Demonstrating tangible value to Council Tax payers is key to the success and credibility of any municipal supplier, be it through low energy rates for those in the area, or through the reinvestment of profits to the benefit of local communities. Passing on this value is one of the key opportunities to differentiate and to build trust and engagement within communities, but to deliver that value they’ll first need to leverage a significant operating margin in order to create and sustain it. This means tackling head on the operational and financial challenges every supplier faces. Thinking back to the high expectations point, and taking into consideration the number of suppliers (big and small) that continue to grapple with operational and financial inefficiencies, it’s going to be no small feat for municipal suppliers.

When squaring up to the challenge posed by the industry, overcoming it can seem like an insurmountable task. But break it down piece by piece, and the problem becomes a lot easier to manage. This is the concept of marginal gains, and is the approach that propelled the British cycling team to victory in the 2012 Olympics, taking 70% of the gold medals available, and lead to the first ever British winner of the Tour de France.

By focussing individually on settlements, operations, billing, revenue assurance etc., and using data to analyse and identify the areas for improvement, it’s possible to achieve significant gross margin improvements. The compound effect this can have over time is dramatic – the chart below illustrates the kind of advantage that’s achievable by continuing to focus on marginal gains:

At ENSEK we use our leading energy reconciliation Libra to do just that – by breaking down every constituent piece of the energy supply puzzle, and intelligently putting it back together, we’re able to provide invaluable operational and financial insight into every area of the business, powering a step change in the way a supply business operates, and delivering real, tangible value to the bottom line.

Interested in how ENSEK could help your business become the next Team GB? Get in touch.