The energy market 2022 – Vulnerable customers and increasing energy costs

With an increase in energy bills looming and reports of the price cap taking average bills from £1,277 per year to over £2,000, it’s not just vulnerable customers that are going to be impacted, however the most vulnerable could suffer more severe consequences. At an expected average increase of c£60 per month more customers are going to be placed into fuel poverty and many may be forced into a decision of heating or eating.

Energy companies hold robust information about their vulnerable customers which will have been collected over many years whilst speaking with them. This helps them to tailor solutions to customers’ needs and situations and in the case of emergencies, know who may be impacted the most. There may however be a large number of customers that have never been in touch with their energy supplier and therefore their vulnerabilities will be unknown.

When will customers start to feel the pinch?

The proposed increase will be from the 1^st April 2022.  Customers broadly pay in 3 different ways:

1. By prepayment meter

These customers will see the most immediate impact with customers topping up meters weekly. In some cases, they will see an impact within the first week of April.  Using average consumption, that could be a £15 increase per week.  A large proportion of vulnerable customers will pay this way

2. On receipt of a bill every 3 months

The first bill after April will reflect the price increase. So, customers could see the first impact as early as May.  With this bill covering a good proportion of the winter consumption, it could be one of the highest bills of the year

3. Direct Debit

Over 70% of customers pay a fixed amount each month thereby smoothing the winter peak over a 12-month period. Energy companies normally review the monthly payment twice a year so depending on where customers are in this cycle will depend on how soon they see an impact from the increase. It could be several months before they get a review. 

In this rising market, it could be the Direct Debit customers who get the biggest shock.  For example, if a customer gets a review at the end of July 2022, there will be 4 months where prices have gone up but the monthly payment doesn’t reflect this.  The monthly payment will then need to be increased to reflect the increased cost of energy going forward and also recover the 4 months where the customer has underpaid.

For a direct debit customer, in this scenario it could seem like their bill has gone up by 75% and here’s why:

Direct Debit example
The existing Direct Debit is £106 per month (£1,277 / 12)
Price cap increase should add £60 per month to the payment
A review in July means 4 months x £60 missed (£240)

At the time of review, payment will need to increase to £186 per month to cover the £60 per month increase and also claw back the £240 over the next 12 months.

This will feel like a 75% increase to customers which will undoubtedly result in an increase in contact, complaints, and at worse, customers cancelling direct debits because they feel they are wrong.

What can energy companies do?

It’s well publicised as to why energy costs are spiraling but many people may not have understood the size of the impact to them on a weekly / monthly basis or are ignoring it. There are several ideas the government is considering to try and limit the impact on customers but whatever this is, there will be some impact, it’s just a case of what size the impact will be. We anticipate that many vulnerable customers who have previously been able to pay their bills will now find it difficult and this will be across all payment methods.

Prepayment customers

Customers are likely to run out of credit on their meters and reach out for support. Energy companies should be ready for this increase in contact and have the solutions in place to be able to support customers when they call.  It’s also likely that some customers won’t make contact and self-disconnect instead, often known as self-rationing. This is difficult to detect so having a robust process to identify these customers and proactively reach out to them when they haven’t topped up their meter as often as they normally do is crucial and could be a lifesaver

On Receipt of Bill

Early intervention in the collections cycle is important to acknowledge the situation and offer help and support to customers which may need either to spread the cost by Direct Debit over the next year or a referral to a 3^rd party to check they are receiving all the benefits they are entitled to. As with prepayment, many customers just won’t get in touch, which is where a different approach may be needed such as Sigma’s ReachOut service aiming to reconnect with customers that just aren’t responding directly to the energy company.

Direct Debit

An increase in the volume of customers cancelling their direct debits is a sign that customers aren’t happy and they may do this before, or instead of, contacting the company. Following up with an outbound multi-channel campaign is the best way to be proactive in this situation. Be prepared for an increase in contact post-June, when reviews start to kick in and Direct Debits are heavily impacted. It’s possible that a large proportion of customers who aren’t known as vulnerable may well now be in difficulty, so reaching out to customers to understand their circumstances will be key.

How can Sigma Connected Help?
With Sigma’s experience in the energy sector, unique products such as ReachOut, and our capability to stand up inbound and outbound campaigns rapidly we are well-positioned to take the strain of this spiraling crisis and put solutions in place to support your most vulnerable customers

For further information or a wider discussion on how we can help your business, contact us below.