Expectations of DNOs & Willingness to Pay for Improvements in Service Stage One Presentation – Qualitative Research

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. Stage One Stage Two Qualitative Research Quantitative Research • Exploring relevant issues • Understanding how Consumers think and feel • Providing necessary context • Providing measurement • Relative service priorities • WTP data 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 (<40) • SEG – Lower (C2DE), Higher (ABC1) • Business Size - Based on usage/annual cost: Small < £15,000; Medium £15,000 - £159,000; Large >£159,000

7. Locations Urban and Rural spread across eight locations Glasgow (Urban) Tong (Rural) Manchester (Urban) Gloucester (Rural) London (Urban) Edenbridge (Rural) Cardiff (Urban) Romsey (Rural)

8. 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

9. Negativity around pricing Increased/ Stealth Taxes Over complexity of Market Fat Cats Low Involvement marketplace Green = Populist Issue Automated Service Key Contextual Issues Seven key issues impact on response to DNO service expectations and WTP

10. 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 • 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 • Hospitals, manufacturing, schools • Multi sites • High voltage • Own transformers • Back up generators • Direct 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 that’s good However, continuous supply = hygiene factor Doesn’t create satisfaction if it’s working but creates dissatisfaction if it doesn’t

14. Current Issues with Overall Electricity Supply (2) Once pushed, Supply side issues dominate Customers’ mindsets – mainly Neutral-Negative response • Bill shock • Increases in prices • Complex pricing • Comprehension issues (variable with different suppliers) • Estimated vs. Actual Meter readings Billing issues Switching Suppliers • 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 think so many people apart from myself, there’s been so many elderly people get so stressed out with this extra billing and they’re suicidal half of them, you know what I mean, they just can’t cope with it. I can’t.” Gloucester, Domestic “I have just switched and there was various incentives that haven’t materialised and they have sent me a bill although they have taken the direct debit but won’t be reading the bill for 6 months “ Manchester, Domestic Customer Service Power Outages “As long as it works it doesn’t matter. For us it’s 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 we’re told what’s 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. Involvement with DNOs Minority of Business sample had contact with DNOs • Set up/Installation stage • equipment/machinery that requires higher voltage • installing transformers • creating direct links to sub-stations • Technical advice – overloading or underpowering In the Past Now • 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

19. DNO Responsibilities (1) Majority focus on present tense Rural and larger Small Businesses more thoughtful about future DNO Responsibilities • 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 Present Tense Pro-active Communication Environmental Responsibilities Future Focus

20. 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. I’ve heard stories that you have to have a couple of sand bags and that’s 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. There’s 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 “We’ve not had a power cut, or surge. It’s like you were saying, I’ve 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, I’d hope that they would be on top of everything.” Small Business, London “Yeah we had a big one during the floods. But I mean that’s 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) • Lack of communication (during power cuts) • Lack of pro-activity • Poor customer service – new project set-up -ve +ve • 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

22. Power Cuts

23. 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

24. Never/Occasional Similar comments across Urban and Rural locations “That’s the first time I’ve had one in 4½ years. But I have woken up in the morning and found that the clock was flashing”. Glasgow, Domestic “There are a lot less now than there used to be. When I was a small boy…but I can’t remember the last we had here. We haven’t had one at work.” Small Business, Manchester “I remember as a kid we had them all the time and we had candles. Now we don’t need to have the candles”. Tong, Domestic “It’s certainly a lot better than it used to be I believe. We don’t experience them” Gloucester, Small Business “I have lived at my house for 3 years and haven’t had any” London, Domestic “You can’t fault the actual supply.” Cardiff, Small Business “Where I live in Romsey it seems to be particularly prone to power cuts, it seems to be something with the ring that I’m on.” Domestic, South “We’ve had minor ones but it will be minutes rather than anything really.” Kent, Domestic

25. Impact of Power Cuts (1) As with the previous study, range of emotions from mild to major across sample Inconvenient Life Threatening Frustrating Romantic For most, low experience of Power Cuts means mild frustration vs. anything stronger

26. Inconvenient Life Threatening Frustrating Romantic 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 • Act of God - Severe Weather • Trees falling on cables • Terrorist act • Customers’ old equipment/ fuses Out of DNO Control Within DNO Control • Problems with cables • Not managing power surges etc • Rationing Supplies “…act of God you can throw as much money as you want….it’s not going to stop the wind blowing a tree over.” Domestic, Kent

29. 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 “…they’re making a lot of money, they’re all huge, huge companies, I don’t think there’s any excuses whatsoever…why haven’t they got these big generators…they know they’re 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 it’s coming back on • Apology and explanation – Why did this happen? • Reassurance – What we are doing to make sure it doesn’t 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 • Wouldn’t 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 • Voltage issues fairly difficult for customers to identify • Most unsure of whether they’ve ever had a surge or a dip! • Isolated incidence of UPS purchase to regulate voltage Domestic Business • 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 For Compensation Neutral/Against 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 Business Domestic 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. GS2:Restoration 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. GS11:Restoration of Supply (Severe Weather) Should this be covered? • Yes – most important aspect • 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. GS2A:Multiple 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. GS4:Notice 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. GS8:Making 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 • 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 Present Tense 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 don’t 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 • “I’d go for the generator as well. My Small Business is…the 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 • Improvements in safety (hidden stops cancer) • Prevents problems eg cutting through cables • Reduce maintenance Benefits Concerns • 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 don’t 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 don’t – I can live with that eyesore if it means electricity stays cheap.” Cardiff, Domestic But it’s 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