Expectations of DNOs

1
Expectations of DNOs Willingness to Pay for
Improvements in ServiceStage One Presentation
Qualitative Research

• November 2007

2
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

3
Research Background

• Objectives, Method and Sample
• Context and Sample Differences

4
Comprehensive Research Programme
5
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

6
Methodology and Sample
16 discussion groups
16 face-to-face depth interviews

• 8 with Domestics
• 8 with Small Businesses

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

• Urban and Rural
• Domestic Age Older (40), Younger (lt40)
• SEG Lower (C2DE), Higher (ABC1)
• Business Size - Based on usage/annual cost Small
  lt 15,000 Medium 15,000 - 159,000 Large
  gt159,000

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Locations
Urban and Rural spread across eight locations

• Glasgow (Urban)

Tong (Rural)
Manchester (Urban)
Gloucester (Rural)
London (Urban)
Edenbridge (Rural)
Cardiff (Urban)
Romsey (Rural)
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Deliberative Process
Short, simple pictorial presentation given near
the beginning of each workshop to educate
customers about the DNOs role

• Spontaneous discussion about Electricity service
• Explanation of the Energy Chain
• Responsibilities of the Distributors
• Proportion of the bill that goes to Distributors

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Key Contextual Issues
Seven key issues impact on response to DNO
service expectations and WTP
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Sample Differences Location
Overall, even in rural areas where there was some
experience of Power Cuts/Voltage Issues, service
was acceptable
Acceptable
Rural
Urban
Service
Service
Poor
11
Sample Differences Business Customers
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
Lower Dependency
Higher Dependency

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

• 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

Greater reliance on computers since previous
study amongst all businesses
12
Role of Electricity and Service Experiences

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

13
Current Issues with Overall Electricity Supply (1)
General sense of it works and thats good
However, continuous supply hygiene factor
Doesnt create satisfaction if its working but
creates dissatisfaction if it doesnt
14
Current Issues with Overall Electricity Supply (2)
Once pushed, Supply side issues dominate
Customers mindsets mainly Neutral-Negative
response
Billing issues
Switching Suppliers

• Bill shock
• Increases in prices
• Complex pricing
• Comprehension issues (variable with different
  suppliers)
• Estimated vs. Actual Meter readings

• Confusion with changing suppliers
• Short term offers vs. longer term transparent deal

Customer Service
Power Outages/ Voltage Issues

• 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

15
Current Issues with Electricity Service (3)
Billing issues
Switching Suppliers
I have just switched and there was various
incentives that havent materialised and they
have sent me a bill although they have taken the
direct debit but wont be reading the bill for 6
months Manchester, Domestic
I think so many people apart from myself,
theres been so many elderly people get so
stressed out with this extra billing and theyre
suicidal half of them, you know what I mean, they
just cant cope with it. I cant. Gloucester,
Domestic
Customer Service
Power Outages
As long as it works it doesnt matter. For us
its 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
were told whats happening and we can speak to
somebody, not speaking to a machine or
something. Small Business, Gloucester
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
16
Awareness of DNO Brands
Current DNO profile minimal

• Very low awareness of DNO brands
• Domestic and some business unaware of Distributor
  existence
• Minority of Business customers had experience and
  therefore some knowledge

• Vans prompt some awareness

Potential to raise awareness and create positive
associations with the DNO brands
17
Minority of Business sample had contact with DNOs
Involvement with DNOs
In the Past
Now

• Set up/Installation stage
• equipment/machinery that requires higher voltage
• installing transformers
• creating direct links to sub-stations
• Technical advice overloading or underpowering

• Ongoing contact
• Direct links in times of outages
• Stronger sense of relationship

18
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

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DNO Responsibilities (1)
Majority focus on present tense Rural and
larger Small Businesses more thoughtful about
future DNO Responsibilities
Present Tense

• 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

Pro-active Communication
Environmental Responsibilities
Future Focus
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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. Ive heard stories that you have to have a
couple of sand bags and thats 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.
Theres 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
Weve not had a power cut, or surge. Its like
you were saying, Ive 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,
Id hope that they would be on top of
everything. Small Business, London
Yeah we had a big one during the floods. But I
mean thats 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
21
DNO Performance
Largely positive comments Customer service
issues drive negative comments rather than
inefficient performance (for majority)
-ve
ve

• 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

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Power Cuts
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Experience of Power Cuts
Overall, low incidence of memorable Power Cuts
and strong sense that things have improved over
last 3-5 years
Definite Minority Frequent or Infrequent
Significant Cuts
Frequent
Occasional
Majority of sample Urban and Rural
Never
There were quite a few of them about 20 years
ago. Business Gloucester
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Never/Occasional
Similar comments across Urban and Rural locations
There are a lot less now than there used to be.
When I was a small boybut I cant remember the
last we had here. We havent had one at work.
Small Business, Manchester

• Thats the first time Ive had one in 4½ years.
  But I have woken up in the morning and found that
  the clock was flashing. Glasgow, Domestic

I remember as a kid we had them all the time and
we had candles. Now we dont need to have the
candles. Tong, Domestic
Its certainly a lot better than it used to be I
believe. We dont experience them Gloucester,
Small Business
I have lived at my house for 3 years and havent
had any London, Domestic
You cant fault the actual supply. Cardiff,
Small Business
Weve had minor ones but it will be minutes
rather than anything really. Kent, Domestic
Where I live in Romsey it seems to be
particularly prone to power cuts, it seems to be
something with the ring that Im on. Domestic,
South
25
Impact of Power Cuts (1)
As with the previous study, range of emotions
from mild to major across sample
Life Threatening
Inconvenient
Frustrating
Romantic
For most, low experience of Power Cuts means mild
frustration vs. anything stronger
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Impact of Power Cuts (2)

• 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

27
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

28
Causes of Power Cuts
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 - Severe Weather
• Trees falling on cables
• Terrorist act
• Customers old equipment/ fuses

• Problems with cables
• Not managing power surges etc
• Rationing Supplies

act of God you can throw as much money as you
want.its not going to stop the wind blowing a
tree over. Domestic, Kent
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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
However, broader climate of high energy prices
customers are paying a lot for a service and
therefore it should work
theyre making a lot of money, theyre all
huge, huge companies, I dont think theres any
excuses whatsoeverwhy havent they got these big
generatorsthey know theyre going to have a bit
of roadworks going on . Small Business, Kent
30
Priority Action at Times of Power Cut
Immediate priority is steps 1 and 2

• Efficient restoration of supply
• Proactive communication
• Manage expectations - knowing when its coming
  back on
• Apology and explanation Why did this happen?
• Reassurance What we are doing to make sure it
  doesnt happen again
• Compensation

Critical to communicate that everything possible
is being done to rectify the problem
31
Choices
Hypothetical choice - differences occur amongst
Domestic and Business Customers
Infrequent, Longer cuts
Frequent, Shorter cuts

• Domestic customers prefer frequent, shorter cuts
• Inconvenience vs. anything more
• You can plan for 4 hours
• Wouldnt even notice at work/kids at
  school/asleep
• No need for pre-notification

• 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
32
Voltage Issues
33
Voltage Issues
Not really a domestic issue high voltage
requirements can cause problems for business
customers
Domestic
Business

• Voltage issues fairly difficult for customers to
  identify
• Most unsure of whether theyve ever had a surge
  or a dip!
• Isolated incidence of UPS purchase to regulate
  voltage

• 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
34
Service Attributes

• Review of GSPs
• Environmental and Social Issues

35
Review of GSPs
36
Overall Awareness of Attitudes Towards GSPs
Low awareness of specifics of GSPs but more savvy
customers recognised that some form of
measurement would be in place

• 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

In order to promote greater transparency of DNO
role need to work with Suppliers to increase
awareness of GSPs
37
Principle of Compensation
Mixed response to compensation principle
Neutral/Against Compensation
For 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
38
Amount of Compensation
Significant differences in responses from
Domestic and Business customers
Domestic
Business
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
Test alternatives for compensation for Business
customers drop altogether, change to tailored
system
39
Compensation vs. Penalties
General feeling that compensation across GSPs
needs to be automatic this will directly
benefit the customer and act as a penalty to
DNOs

• 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

40
GS2Restoration of Supply (Normal Weather)
Should this be covered?

• 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

Specific Detail

• 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

Compensation
GS2 Need clear definition of normal weather,
test reduced lengths of time and frame
compensation within context of gesture payment
41
GS11Restoration of Supply (Severe Weather)

• Yes most important aspect

Should this be covered?

• 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

Specific Detail

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

Compensation
GS11 Show pictures of various types of severe
weather with explanations, test longer times to
create differentiation between normal and severe
42
GS2AMultiple Interruptions
Should this be covered?

• 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

Specific Detail

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

Compensation
GS2A More explanation would be helpful, test
compensation issues
43
GS4Notice of Planned Interruption
Should this be covered?

• 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

Specific Detail

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

Compensation
GS4 Test new timeframe, test higher
compensation levels
44
GS8Making and Keeping Appointments
Should this be covered?

• 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

Specific Detail

• 20 feels low for Domestic and Business
• Domestic customers take day off work so require
  better compensation
• Business customers reject 20

Compensation
GS8 Test alternative timings for business
customers, test higher compensation levels
45
Is There Anything Missing?
Cross matching the GS against spontaneous DNO
responsibilities highlights importance of
modernisation/investment of network,
environmental issues and development of disaster
plans
Present Tense

• 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

Pro-active Communication
Environmental Responsibilities
Future Focus
46
Environmental and Social Issues
47
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
48
The 15 million question..
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

• 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 dont 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
• Id go for the generator as well. My Small
  Business isthe main thing I want it on for the
  Small Business. Home is important obviously with
  the Small Business is important. Cardiff Small
  Business

49
Views On Undergrounding
Broad consensus that replacing existing
infrastructure with Underground cables is sensible
Concerns
Benefits

• Improvements in safety (hidden stops cancer)
• Prevents problems eg cutting through cables
• Reduce maintenance

• Cost
• Short term disruption
• Ongoing maintenance

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
dont want to live anywhere near one of those.
Small Business, Manchester
Would that cause our bills to go up? If it
would then no I dont I can live with that
eyesore if it means electricity stays
cheap. Cardiff, Domestic
But its not felt to be a priority
50
WTP for Undergrounding
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
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
51
Cross Subsidisation - Urban Argument
As with previous study, majority of Urban
customers adopt fairly selfish attitude to cross
subs
Selfishly I wouldnt give a damn,, I dont think
I would enjoy paying for other peoples pleasures
in rural areas. London Large Business
We dont 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
52
Willingness to Pay
53
Overall on WTP
Noticeable shift since previous research with
strong barriers to increased bills
-ve Barriers
ve Barriers

• 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

• 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 dont 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 doesnt happen as often Tong,
Small Business
54
Scale of WTP
Rejection of WTP is based on principle rather
than / amount Once pushed, some acceptance
at amounts tested
4 not out of the question for Business customers
1.00 for Domestic customers
Business levels feel ok for quantitative but
domestic ceiling 3 pm Prices need to be
tested in the context of persuasive arguments
55
Arguments for WTP
Some Business customers who consider loss of
power in terms of loss of can be persuaded

• 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
56
Minimum Expected Service Requirements
Customer Service hopefully last resort.
Secondary to core business focus of investment in
networks

• 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)

57
Conclusions and Way Forward
58
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

59
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