Fifty Shades of Tariff

There’s nothing that better illustrates the sado-masochistic relationship between energy suppliers and their customers than Tariffs.  They’ve evolved to be the whip that utilities deploy to beat their users into “correcting” their behaviour.  That form of correction may be trying to limit the total amount of energy you use, or changing when you use it.  But there’s a clear message coming through – energy suppliers want to be in control of the relationship. 

It’s a concept that consumers have a problem with.  Survey after survey reports the message that consumers don’t understand tariffs.  They don’t even understand the word.  And regulators are often less than happy with multiple or complex tariffs, because they’re aware how much they confuse people.  That was highlighted in the UK earlier this year when the regulator OFGEM took the paddle to the utilities to persuade them to reduce the hundreds of tariffs in the UK to a few simple ones.  But that doesn’t stop utilities fantasising about a future where they can run riot with tariffs.  The most extreme example is now being constructed in the UK as part of the British smart metering specifications.  These allow a level of complexity that makes the most diabolic tortures devised by the Inquisition look simple.  Fighting the consumer interest corner is our Energy regulator – OFGEM, which is about to give up on persuasion and start meting out some punishment itself.

There are some valid reasons for considering complex tariffs, but these need to include consumer engagement as a fundamental feature of their development.  What is happening instead, particularly in theUK, is that tariffing structures are being developed as a technical exercise.  They are now so complex that they threaten the interoperability, cost and usability of the British smart metering roll-out, setting smart metering up to be the next major UK Government IT disaster. 

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Over the last few years I’ve been involved in designing products and digital services that attempt to change consumer energy behaviour through education and nudges.  I’ve also been involved in specification groups which are designing the capability for smart meters to support incredibly complex tariff structures.  There is precious little coming together of minds between these two groups.  The first is customer centric, helping people to learn and change.  The latter is totally technical, driven in many cases by competing industry members trying to demonstrate that they can add more features than their competitors – essentially little different to a competition of little boys seeing how high they can piss up the wall.  Unfortunately this latter approach plays to the mentality of most utilities.  They are naturally risk averse, and when confronted by a new paradigm, prefer a complex specification which they can use as a tick box list to compare suppliers, rather than the less measurable approach of trying to engage with customers.  That’s not surprising – they’ve been pilloried for their incompetence in consumer engagement for the last decade.  Their natural reaction to that is to grasp an option that lets them mandate and use force, rather than attempt to engage with customers and potentially fail again.

There is little attempt to find a middle ground.  That has a real risk, as the technical solution is gathering momentum.  It is now so complex that I fear it will not work, which will waste tens of billions of pounds in an abortive smart metering deployment.  The one spark of hope is OFGEM’s current consultation on the retail market, which is calling for a cap to tariff complexity.  But even if they succeed in that, the technical complexity of the current specification will make it hard to engage consumers.

I’ve written this white paper both to explain the current complexity of the tariffing schemes, and also to highlight the conflict between the technical and the inclusive approach.  TheUKis at the front of the charge for complexity.  Unless it is challenged, others will follow, potentially damaging smart metering and preventing its real benefits from being realised. 

I believe that it is important to reconsider how we are going to achieve the necessary level of consumer change, and the price we might be paying by mandating complexity.  Please read it and let me have your comments.

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