Speculation that households could soon be hit by a second round of rate hikes have increased after two of the big six suppliers, British Gas and SSE, warned the public that "challenging" market conditions would force the suppliers to pass on higher costs to customers.
Experts also warned of "significant evidence" that higher wholesale prices will push customer’ bills up further after suppliers pulled their cheapest fixed-price deals from the market. Specifically, British Gas withdrew its WebSaver 11 and replaced it with WebSaver 12, which costs £60 more on average per year while npower’s replaced its £960-a-year Go Fix 5 with Go Fix 6 at an increase of 4.2% for gas and 8.5% for electricity. SSE, which has suffered reputational damage from mis-selling accusations, warned that customers should expect an increase in prices over the next year due to increased wholesale prices after increasing its tariff by 18.5% last year.
While customers are struggling with rising energy costs and soaring inflation, there is more positive news for shareholders. Strong annual results from National Grid and SSE promise higher than expected dividends from these companies following increased revenues. Across the big six, profits increased by 26% in 2009 with British Gas reporting record profits of over £2 billion.
Alva’s analysis has identified that the Financial Performance and Products & Services Execution reputation drivers (which correspond to the interests and expectations of shareholders and customers respectively), have the smallest correlation among reputation drivers in the utilities sector, indicating the least positive relationship between the two groups. In other words, where a utility’s shareholder expectations and interests are met, it often results in its customer expectations and interests not being met, and vice versa.
The old debate about whether companies should focus most on their shareholders or their customers seems to be an ongoing issue in the utilities sector. In a Harvard Business Review article, Roger Martin, dean of the University of Toronto’s Rotman School of Management, has stated that it is time for companies to abandon the "shareholder value capitalism" and make the shift to "customer-driven capitalism" to aim to maximise customer satisfaction.
In the long-term, a company’s value-creating activities should focus on developing its relationships with a broad range of stakeholder groups as this is the key to driving the value of its intangible assets, a major part of its market capitalisation. A narrow focus on one stakeholder group to the detriment of all others is an outmoded model, which fails to take into consideration the full stakeholder and reputational environment in which a business may thrive.
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.
—- By Nicholas Chrysanthou, energy consultant analyst at Alva