UK: IM Sounding Board - The benefits of multi-utility.

UK: IM Sounding Board - The benefits of multi-utility. - The rate of change in the utility industry since privatisation has been very fast. Customers have, in general, seen significant improvement in service and price reductions in power, telecoms and ga

Last Updated: 31 Aug 2010

The rate of change in the utility industry since privatisation has been very fast. Customers have, in general, seen significant improvement in service and price reductions in power, telecoms and gas, while shareholders have seen returns beyond their original expectations. Rationalisation in the industry has produced further change, some overseas ownership and the birth of multi-utility companies selling electricity, gas, telecoms and water. There is no doubt that the change process will continue at a high pace, though the direction will be somewhat different from the last five years. The full deregulation of the gas and electricity industry in 1998, which involves the opening up of the domestic consumer market to full competition, will produce change on a scale not seen anywhere else in the world and I believe both the customer and shareholder will benefit.

Utilities in Scotland have been different since privatisation, with electricity companies being vertically integrated and the water industry still in the control of local authorities. In Scottish Power, the early thrust of post-privatisation produced a tremendous effort to bring each element of the business to the highest efficiency point through benchmarking against those companies which were the best in the world. Today it is interesting to note that many international companies want to benchmark against us.

The other major thrust in Scotland of both sweating the asset and working with our customer base resulted in the birth of Scottish Power as a multi-utility. By taking the telecoms infrastructure that controlled our power network, upgrading it and extending it using our transmission system, we have created a state-of-the-art telecoms network. Similarly, as we are already in the gas business, it was a small step to supply the deregulated industrial customer. The major deregulation of domestic customers in our regions, many of whom we already supply with power, will be an exciting yet demanding step forward.

Multi-utility is still in its embryonic stage in the UK, though few recognise it as being commonplace and, in fact, the 'norm' in many European countries. Few people predicted the major improvements that have occurred in utilities following privatisation. In most utilities, the strong focus from both commercial and technical aspects has resulted in a higher quality product, reduced prices for customers and good shareholder returns. Further focus on the customer, coupled with major investments, led to a number of utility companies striding forward in terms of reputation. The developments in information technology gave companies the opportunity to enhance their knowledge of both customers and assets. The change process in both organisation and attitude picked up in tempo to create a number of high-quality, customer-responsive companies. The emergence of the competitive markets in industrial electricity and gas focused the mind strongly and, by 1995, most UK utility companies were in the position of being advanced by global standards in terms of efficiency and competitiveness.

In late 1994, Trafalgar House, through their bid for Northern Electric, started a process which would have a far-reaching impact on the UK utility industry. In the hot summer of 1995, there were 10 bids for regional electricity companies of which seven were successful. Three US companies established themselves in the UK, two water companies bought their local electricity companies and there was one electricity/electricity takeover.

Most of these companies were able to make significant efficiency improvements, however, the latter two groupings also moving to focus on their customer base and its growing needs.

Research shows that customers focus on utility companies from several different viewpoints. Price, quality of supply and safety are major issues, but there is also a strong and growing trend for convenience. The desire for convenience in meter reading, billing, payment, common utility installation and energy management is a factor which is attractive to the customer and efficient for the modern utility company.

The development of the employees within the utility industry, together with advances in IT, has produced management and staff who are much more focused on customers, efficiency and cost. An influx of new management from outside the industry brought step changes in practice. Today's focus is on enhancing employee and management development with a strong emphasis on the young, high-potential employees, so the leaders of tomorrow can, in future, come from within.

Full deregulation of the domestic electricity and gas market will produce opportunities for both customers and utility companies. It will be on a scale not seen or tried before anywhere in the world. The efficient and customer-responsive utility company will be able to provide the customer with a quality bundle of products at competitive prices. Clearly economy of scale will be a critical factor in provision of such a service.

The multi-utility industry will need satisfied customers to progress.

Therefore the equation is well balanced between the customer and the shareholder.

Within the customer focus lies the community which brings both local responsibilities and potential market advantages. The environment features significantly in most utilities' thought processes, and local communities benefit from this focus.

Today multi-utility is defined as power, gas, telecoms and water, and only a handful of companies have this portfolio available. Others will undoubtedly stick to their core solo product but in a world where quality of service, timing, convenience and price dominate, where will that leave them? Much greater forces are with us today or on the horizon: the Internet, home-shopping and other information services which will change our views on lifestyle. Lifestyle in the 21st century will demand more and more innovative convenience products and multi-utility will just be one of them. The modern utility company will need to understand these products and will have an unique advantage to serve this growing customer need.

Today's emergence of bundling utilities to customers is in its early days, but tremendous opportunity lies ahead for both the companies and their customers.

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