At the moment Ofgem can only pose a fine of up to 10% of a supplier’s turnover. However, from a reputation perspective, the impact can be much greater. Recent fines for utilities, such as those levied against Scottish and Southern Energy (SSE) and National Grid were the top issues for determining the companies’ reputation scores for that period. Indeed, National Grid’s £8m fine in January for misreporting information accounted for 57.86% of its overall monthly negative coverage and 20% of its entire coverage. Similarly, SSE’s fine in February for connection delays comprised 94% of its monthly negative coverage and 26% of its entire coverage. Therefore, it is clear that regulatory investigation or involvement with a supplier is one of the major drivers of negative coverage and reputational damage for the supplier.

What would be really interesting to see from a reputational and financial point of view is the impact that a referral to the Competition Commission would have on individual utilities and the sector as a whole. Utilities were, once again, "relieved" when Ofgem avoided a competition inquiry and instead chose to make suppliers sell 20% of the power they generate at auction and make it easier for consumers to compare tariffs. However, the measures announced by Ofgem seem not to have jeopardised utilities’ future revenues or profits, a view that appears to be shared by the investment community given that the affected companies’ share prices did not see a decrease following the announcement.

Even if investors were unconcerned about the measures and likelihood of further action, Alva’s utilities reputation analysis showed a continued downward trend reflecting ongoing consumer mistrust and anger with their suppliers. Specifically, the sector’s overall reputational score decreased from 6.96 in November to 6.94, 6.88 and 6.82 in the following months reaching February, strongly reflecting the long-term failure to meet consumers’ expectations. This is further evidenced by a recent survey by PRWeek revealing that 90% of respondents do not trust energy providers to pass on any savings they make to consumers and 63% are considering changing their supplier. The risk that this poses to utilities is for their customer retention and new business figures rather than the short-term fluctuations of their share prices.

Alva’s methodology

Alva calculates its reputation scores on a 1 to 10 fractional value basis, which represents the perception of various stakeholders and market segments at any given point in time. The scores are based on the daily analysis of over half a million news and financial announcements, trading and analyst reports and social media comments.

 

— Nicholas Chrysanthou, Energy Consultant Analyst at Alva