Feeling the heat

Volatile market conditions have transformed the way European companies buy energy according to Kanat Emiroglu, the recently appointed Managing Director of British Gas Business. He tells BM how he is spearheading change to
support companies through turbulent times.

“Last year, which was an especially volatile year for energy, the wholesale curve went up or down on average by four percent every week. A weekly price change is much higher than our margins so you have to get pricing absolutely right”
-Kanat Emiroglu

In your previous role you were Director of the SME division at British Gas Business. Was this role good preparation for the role of Managing Director?
Kanat Emiroglu. SME is a big part of British Gas business; it's two thirds of the customers and it's more than half of the revenue and the profits. So in terms of business dynamics I was very familiar with the business and its strategic, operational issues. But on the other side it's a little bit different when the buck stops with you. There's more senior management interaction and maybe a little bit more political awareness is needed. So there's quite a few new things coming to the agenda.

How will you be working with business customers to help them increase their energy efficiency?
KE. We have six vision statements. The most important one is that we provide complete energy solutions. And what we mean by that is an underlying belief that five or ten years from now nobody in the business world is going to buy energy only as a commodity because it's such a volatile expensive commodity that influences businesses' competitive advantage in their own markets. It's going to have to be managed. And we know from our own data that companies that use energy solutions and actually think about energy efficiency over time and with a little bit of profitable investment can reduce their energy bills by 30 per cent, through some behavioural changes and some small investment. We can give plenty of advice on energy saving stuff such as how to use their heater, their freezer, their lighting, what to do about peak time etc. But advice is cheap. So what else can they do? Well there are a lot of new technologies in the energy solutions area that allow companies to track and monitor their energy usage. If companies get smarter they can, if they have multiple sites across the country, learn which site are the most energy efficient and compare that to the worst ones.

How have volatile energy prices and government regulation affected companies?
KE. For almost a generation since the mid 1970s energy has been relatively flat priced, in general low priced, and a not so volatile commodity. This was partly because the UK was surrounded by energy sources in terms of oil and gas. The North Sea finds helped them and the market here was relatively stable and that's why a lot of companies didn't spend time on this issue as a cost item. Either it was predictable or it was small. But that has changed. Since 2004 we have been an importing country. On gas we depend on quite far away places and so the price is highly volatile. You can pick two gas prices in the UK that are ten times different on a daily basis. So companies need to manage their energy much better. The second aspect affecting companies is regulation. Both governments and the public have become much more aware of what the use of excessive energy does to our climate and to our energy security. There's a plethora of regulations, trading schemes and penalties or incentives that businesses need to be aware of.

If they operate in a vacuum and just ignore the energy area, especially if they are energy intensive, they could be hurt.

A recent survey by British Gas found that 54 percent of companies admit to delaying paying energy bills because of the economic downturn. How big a problem is this?
KE. This is a big problem in the industry. The problem is we're writing off a huge amount of money that is not paid to us as a debt charge in our accounts. We're trying to reduce that because for us that's money taken out of our existing customers so issue number one is that it's costly Issue number two is that people who do pay their bills pay them a bit later. So in addition to the recession we have a credit crunch which means that liquidity is lower and that causes us to use more capital. We will eventually get that money but we do need to use more capital and the amount we use in today's markets is charged at higher rates. So that is a problem. What are we doing about it?

We have introduced something called SAVE (Small business Advice and Value Expertise) because we thought that instead of robotically collecting debt from SMEs we would listen to them and understand what cash flow problems they are facing and develop whatever we can to alleviate those problems to find win/win solutions. This also involves giving advice on energy consumption reduction and giving out energy saver's packs to inspire them to use less energy. There's an online assessment tool called energy savings report, which goes into the specifics of that business and makes specific recommendations in that case. We give legal advice and access to lawyers for SMES that are not aware of some of their rights. There is a government initiative called Prompt payment initiative which helps SMES get paid by their own suppliers. Finally we write payment plans. So instead of insisting that somebody pays 100 percent of the money on day zero, we try to spread it over time for businesses with reasonable credit ratings, so that we don't have to squeeze them too much.

How much money is British Gas Business losing through non-payment of energy bills?
KE. This would be competitive information so I can't give you the number but it's quite high. It's high enough to be one of the top three things in my management team's agenda throughout the year. That is always in the top three. It's especially the case for SMEs and less of an issue in the corporate world where credit ratings are more followed and bills are paid much quicker. In the SME space we see quite a lot of write-offs.

How does the service you provide to large corporate companies compare to that provided to SME customers?
KE. If you measure by sites, we have 900,000 SMES and 150,000 corporate sites. Each SME has 1.2 sites. Corporates have roughly 10 to 15 sites. Some of them have 5-10,000 sites with us. Some have only two or three so it's quite a wide portfolio and we serve them quite differently as a result. If you are a residential customer who calls British Gas you get put through to a call centre where a random customer service agent will answer the call. In the SME sector you have an account manager so when you call it will be your account manager you deal with. He picks up the call 50 percent of the time otherwise its one of his nine team colleagues. In the corporate world you go up one level again and you are served by hubs. These are not just groups of customer service agents in a team but also other multi disciplinary agents sitting with the customer service agents. So there's a debt expert, a billing expert, a technology expert and an energy solutions expert, sitting at the same table. The object being that we want to get to 100 percent first time resolution for corporate clients. In the SME world we're talking to a business owner, an entrepreneur. They have much less time, they value their time more in terms of pounds per hour, they ask professional questions and we need to train our people up to that standard. In the corporate world you are usually talking to a buyer whose job it is to buy energy so again it goes up by one notch.

How competitive is the UK energy market currently and how challenging is it to retain customers in this environment?
KE. In the corporate world you have to bid for customers almost every year now. There used to be two or three year deals but because of the capital allocation and difficult trading environment around energy, most companies are now offering just one year deals and we have reduced our terms also on average from two to probably around 1.6. So every year there's a bidding for that. It's quite competitive. And in the SME market also, prices for business energy changes every day depending on what the market curve does. Last year, which was an especially volatile year for energy, and, the wholesale curve went up or down on average by four percent every week. A weekly price change is much higher than our margins so you have to get pricing absolutely right. And the competition is to the last percentage point. It's also important for companies to know when to buy the energy. So if you were buying it, for instance, in the summer of 2008, when the prices had reached peak levels and you signed a two or three year contract then you would be using energy at a quite expensive time. It's almost unfortunate to have bought at that peak.

What are the biggest challenges you will be tackling in the year ahead?
KE. It is a challenge to deal with the volatility and the debt in this environment. But I wouldn't call it unmanageable. I think the challenge for me is more to continue to grow our business, British Gas Business is a very successful part of Centrica our parent company. It has the highest employer engagement results and it has grown its customer satisfaction every year for the last four years. It has grown its revenues and its profits and the number of sites has grown. British Gas Business has also made successful acquisitions and integrated them. One thing that I personally want to crack is achieving excellence in serving multi sites. So customers like a big supermarket chain like to be able to serve them in a way they couldn't imagine before in energy. We have already better customer satisfaction in multi sites and we're getting even more specialised in other areas and getting the right technologies.

How do you serve companies with multi-sites currently?
KE. Imagine yourself as the buyer of energy in a company like Boots or McDonalds. We come to you and we say we are going to install smart meters in your 5000 sites across the UK. And that will also include sub-metres that measure different parts of your store using different parts of energy. Three months on we can show you charts showing which of your 5000 sites use energy the most efficiently. Secondly we can show you some insights about how you do heating, freezing or lighting in energy use versus competitors of your industry and if there are any insights coming from that. Thirdly we can show you peak versus base usage and that can really influence the way you use energy. And fourthly we can talk about clusters you have where you could produce your own energy such as micro CHP systems. Our aim to become 21st century energy sellers."