Janet Wood spoke to Peter Haigh about starting an independent supplier backed by a city council
This interview was first published in the November edition of New Power Report. Since then, Bristol Energy has officially opened to new customers.
I meet Peter Haigh, the new managing director of Bristol’s new energy company, about a fortnight before Bristol Energy is due to enter controlled market entry. The fledgling company has seven permanent staff and (on this day) 15 others, and he is taking a break from testing and from qualifying 100 different standard letters that have to be ready for new customers from November.
Bristol City Council decided to set up a fully licensed energy company, ignoring Ofgem’s ‘lite’ option and white label offerings. That decision was made well before Haigh came on board, but he applauds it: “Long before I joined, Bristol had put a lot of effort into its business plan, due diligence, bringing in expert advisers. One thing that convinced me to join was that work had been done.”
He adds, “Bristol has said they want to be the shareholder but they want it to be a very separate ring-fenced company with its own board.”
The board is chaired by the council and comprises Haigh, Bristol Energy’s new director of sales and communication Elaine Warwicker (a recruit from Ecotricity) and two more directors from the council. A recruitment process for two non-executive directors is “imminent”, says Haigh.
“You can set up a retail business and there are systems you can purchase that enable you to get going without the overhead that there was five years ago”
His role in his first couple of months has been “transforming from a programme to a business”. That’s where the energy world has changed, he says: “When you think about what’s enabled [recent new energy entrants], one thing that is self-evident when you get into the process is the availability of systems that weren’t there three to five years ago. You can set up a retail business and there are systems you can purchase that enable you to get going without the overhead that there was five years ago.” Bristol Energy is using Utilisoft’s platforms.
Does Bristol City Council want profits from its new energy company, or a way to offer broader energy services to its customers, potentially slimming returns? I ask Haigh about how the relationship between council and company will work.
First, he says the council wants to maintain its stake: “It has a 100% shareholding and will stay that way. They see it as best held by the council for the benefit of the community. Any dividends paid go back into the council, which decides where best to spend that money. The key difference between the council and traditional shareholders is the focus on the community and recognition of the social aspect of energy supply.
“One thing we are also very aware of is that if you take a broader approach it could affect shareholder returns. You are doing things that other businesses may not do. That could be the level of service, looking at particular tariffs, or supporting vulnerable customers.
“It’s very clear from the outset that the company must stand on its own two feet and be able to manage the risk associated with energy supply. Profits will be returned to the council as dividends but at the same time it expects to be a force for social good.”
As with any new energy company, “we have to be distinct”, says Haigh, and he sees the Bristol connection as a real advantage, because of “the way the wider Bristol City Council plays in terms of energy”. The city is investing in renewables and energy efficiency programmes.
Gearing up to grow
Bristol Energy will be a national energy company and – at the start at least – it won’t offer specific local options. The company can’t be driven by the Bristol boundary – for one thing, distribution network operator (DNO) boundaries cut through the city, giving the new company three networks to deal with (albeit some with common ownership).
“DNO boundaries cut through the city, giving the new company three networks to deal with”
Haigh says, “We have to grow beyond Bristol. We can’t only be a niche ‘city and its environs’ player.
“But at the same time we want to recognise where we come from. In terms of our future aspirations, one of the things we have to get right in the next few months is the customer experience. It’s all very well saying we want to do this, launch targeted tariffs, whatever, but it has to be built on a bedrock of solid tariffs and meeting customer expectations.
“I was gobsmacked there are 100 letters that we have to have in the system to cover every eventuality. All of these have to be right. At the moment it’s about grinding out what the customer will get.
“One of the current challenges is having the ‘four tariffs’ restrictions,” Haigh notes. To start with at least, Bristol Energy will offer “fairly standard” tariffs – fixed and variable rate, for single or dual fuels, and with various payment methods.
Haigh says of the tariffs: “We are competitive with the big six.” I suggest that with standard tariffs, the Bristol Energy brand will not be very radical. Haigh says: “For us, it’s getting the basics right. We need to be competitive, get customer service doing what it says on the tin.
“But as we get through that and into 2016 it’s about doing more. We are excited about smart meters, the way we can have a different conversation with customers. We are looking in depth at the end customers in a smart world and what that looks like. We are looking at prepayment customers.
“We would certainly look to do things in the local area but also with local groups.”
The new company begins controlled market entry in November, during which time industry rules limit it to a few hundred customers. “That takes us to mid-December, when we can pass, fail or extend,” says Haigh.
A website asking for expressions of interest has had about 500 responses, following various stories about the new company but with no outreach. Haigh’s colleague Elaine Warwicker adds, “Clearly these people’s motivation will vary – just curious, or they don’t like their existing supplier. But for us these are very special proactive people, and we have to make sure we support them as potential customers.”
“The aim is to build up a customer base in the tens of thousands over the first 12 months”
Controlled opening successful, the company will kick into gear in the new year. The aim is to build up a customer base in the tens of thousands over the first 12 months. The company wants to do all its customer service in-house, but Haigh knows he may have to deal with the unexpected.
“You think about resource planning as a startup business and you want to do things in a certain way. But it’s happened to others that for whatever reason – a line in the press – and you get a [bunch of switchers].” But he says the company “has a plan B. We
are talking to EnergyHelpline. They are strategic partners who have done it before, not just delivering a technical solution but bags of experience.”
Haigh adds: “We are fortunate in Bristol, it’s a great city for recruiting – there are several large energy companies in the area. It’s a good place to have an energy retail business. That could come back to bite us when we have grown – but it is in the mix.”
Eventually the company will offer business tariffs and it is immediately interested in small and microbusinesses. Haigh makes other suggestions that could follow on once the company is established. That includes working with Bristol’s energy charities and other bodies aiming to improve energy efficiency and develop community energy projects. He says one possibility is offering white label products, for example to housing associations, and he’d like to combine that with a business contract to the partner organisation. He stresses: “It would require a good fit between their ethos and values and ours, but it would be one way to grow the business beyond our current domain.”
All the complexity
I ask Haigh how the new company is managing the various risks and barriers that make it so hard to enter the industry. Here is where Bristol Energy’s relationship with the council is of real value. It provides credit and collateral, says Haigh, “they have to do it on a very arm’s length basis and at public rates, to meet State Aid rules”. That is another reason to set the new company up as a stand-alone entity with its own reporting.
“In recent years price volatility has been pretty benign, compared to five years ago or more. My personal view is that won’t continue, the market is looking for investment signals”
When it comes to energy trading, Haigh says he is very aware that “we are looking at a world where prices will become more volatile”.
“In recent years price volatility has been pretty benign, compared to five years ago or more. My personal view is that won’t continue, the market is looking for investment signals. As with any company going into a retail business it’s about the risk appetite, which is up to the board.
“As you’d expect with our ownership, the approach is ‘prudent’. I am not going to be backed if I am a burden.” He notes that changes to cash-out rules and gas pricing will also increase the risk.
The company will manage demand forecasting, and set the hedging strategy. “In terms of trading, we are working with a company on gas and one on electricity where we provide them with forecasts and they will take balancing risk and we will pay for that. We won’t have a 24/7 trading team, we won’t be doing day trading or anything like that, which is another reason for being very modest in terms of customer numbers until 2016.”
I ask whether good forecasting is the biggest challenge for a small company and he admits “it’s a really hard thing to do and the myriad payment options is a challenge. That’s a driver to recruit experienced talent.
“The key thing is to get our systems bedded down, see the customer registrations come through, and translate that into demand forecasting,” he says.
Measures of success
Talking about the pressure of getting forecasting right, Haigh says: “Acquiring a lot of customers suddenly is mildly terrifying.” That’s a risk of one type of failure. What’s the company’s biggest risk? Haigh says that at a high level, the risk is that “we will disappoint. The biggest risk is to fall short in terms of values of the council”. Given that pressure, what is the measure of success?
Bristol Energy wants to be a big energy company that provides dividends for the city, or at least a different type of energy company with a broader service
offering. I ask: would being a fairly standard supplier with tens of thousands of customers still be an
attractive proposition for Bristol? Haigh says no – or at least, “we’d have to understand why we were in that space – because of a conscious decision to
slow down growth to develop a new service offering, or tariff. We would have to have a conversation with our shareholder.”
That’s for the long term. In the short term, Haigh is very aware that he is in a unique position when it comes to pressure from the board, as the council has the kind of relationship with its residents that energy companies often say they want.
“I guarantee that if customers are not satisfied with what we are doing, it will go straight into the mayor’s office”
“If you have a traditional utility business, if something goes awry – they may weigh up [whether to complain]. We have an elected mayor who is very visible to the people of Bristol and that is an excellent bellwether. I guarantee that if customers are not satisfied with what we are doing, it will go straight into the mayor’s office,” and that will come straight on to him, he says.
How long does Bristol Energy have to prove itself? Haigh mentions that “realistically the first 12 months will be pivotal in terms of acquiring customers. We’ll have very frequent conversations with our shareholder. They will be looking to me and the executive team to deliver”. That’s a given. But the close relationship between voters and council suggests the new company could face a different test, when council elections are due. That’s the time that management and council members will have to prove to voters that Bristol Energy has delivered on its double objectives.
Originally published in the November issue of New Power Report. Subscribe to New Power for full analysis, comment, interviews and data in our monthly report, and access to our database, or sign up to our FREE e-newsletter for website updates
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