The Covid-19 crisis is so much more than a pandemic. It’s a massive economic shock to the system, and as a company at the heart of a critical industrial sector, Octopus Energy has been working very hard to handle the impact.
I've always aimed to be candid and transparent with customers. Particularly in uncertain times like these, clarity is so crucial. That's why, for anyone that's interested, I've written up exactly how Octopus is adapting to the coronavirus crisis, and included all the considerations and reasoning that have gone into our decisions. Not only in terms of how we're looking after our staff, but how we're protecting teams who work in the field, and what we're doing to help customers who'll face a dramatic loss of income over the coming months. There have been some tough calls here – the kind of thing that can be used to create sensationalist headlines and social media posts – but Octopus always believes in being straight about stuff, and that's never been more important than times like this.
We’ve first worked out what we can do for our team. Some say “the customer always comes first” – but without an incredible team we can’t look after customers at all. That team put customers at the heart of all they do –so as leaders, we have to do all we can to support them so they can continue to help customers in the best way possible.
And then together, hundreds of us work extremely hard on how we can deliver the best service to customers.
We’ve focused on quick and urgent action (but never panicking) and have followed government advice at every stage. Since Monday 23rd March, our office-based team has moved entirely to working from home. Fortunately, investments we’d made in cloud-based technology and our culture of “freedom and responsibility” meant this was pretty seamless. The tech has adapted, and frankly, so have our teams - instead of waiting to be told what to do, they were able to make quick changes and just get on with business as usual.
Since then, we’ve established OctoKids and OctoTV to help parents balance work with looking after their kids. Some teams have set up buddy systems, making sure no one working from home ever feels isolated or lonely. (Of course, hundreds of people in customer operations are still talking to customers every day, which helps prevent loneliness too!)
One of our recent full-team meetings – with 200+ Octopus people dialling into a shared call
Beyond our office-based teams, we employ people in face-to-face roles such as metering engineers and installers, brand ambassadors in M&S stores, and hundreds of people working through agencies in field sales and telesales. We’ve had to scale back things like meter installations (we’ll be focusing on emergencies and priorities only), and all door-to-door sales have been put on hold. Telesales reps will only be able to operate where they can do so without using offices.
We’ve made the decision to maintain full pay for everyone we employ directly. Where people can’t work, we may use the government’s furlough scheme and top salaries up to 100% - and we’ll also continue to give access to company resources (like vans and computers) so they can assist in NHS and other volunteering programmes.
Where people work for us through agencies and contractors, we have worked hard to create fair support. It’s hard to give a blanket statement because the situations are different in each case. First, we expect agencies and contractors to shoulder their share of the cost of looking after people and we’re delighted that most have really risen to the challenge on this but each in different ways. Second, in some cases there are real dilemmas. For example, some of the roles have a very high early dropout rate because the job just isn’t right for many people (e.g. very few people have the stamina and motivation for some sales roles). As a result, there are often more people in the training process than there are doing the job, and it’s not viable to pay them all full pay for the entire period of coronavirus. So instead, we’ve worked with the agencies to try to deliver fair solutions such as offering significant lump sums - matched by agencies to maximise the amount; assistance in finding other work; and promises that agencies will hold jobs open once this is over. There are other complications to do with business insurance policies, and some of the government schemes are very helpful for many people and businesses and we need to enable agencies to access those too.
There are many other scenarios - and there’ll be some I’m not even aware of. As per my opening paragraph - I’m trying to be open here about the dilemmas, and I know that for anyone personally affected, some of this may seem insufficient - losing your job, or your income, especially at a time like this is brutal. If you want to draw our attention to anything we’ve missed please email email@example.com and a Director will look at the issue.
For teams who continue to work in the field... a special mention is required for our metering engineers, who are volunteering to look after any customer with a metering emergency - even where the household has known cases of Covid-19. Our engineers are fully trained on how to do jobs in homes with vulnerable people and we’re providing special training and equipment in the wake of Coronavirus as well. We expect to upgrade from protective coveralls and face masks to full Hazmat suits as of March 30th where they’re necessary.
Our metering engineer Jez in protective coveralls and mask
Since moving to a fully remote operation, we’ve been able to maintain service at the usual levels. Indeed we’ve actually improved our phone answer times, and email response times have been fairly good too. Overall service levels have been about the same as pre Covid-19 and are expected to keep improving. We’ll keep you up to date with any changes that could affect customers via our regular Coronavirus blog.
We do face some challenges now as other energy companies’ systems and teams are less adaptable and they’re not able to help us as efficiently with switching, data and metering queries. We’ll work hard to minimise the impact of this on customers.
For some customers, energy bills have become much harder to pay as a result of the Coronavirus crisis. This is one of the biggest challenges facing energy customers during this time and I’d like to address this candidly too. I hope that by being frank, rather than issuing blithe and misleading statements, we can deal with this better.
There are two reasons customers may now struggle with energy bills (beyond any which existed pre-Covid 19).
With the UK’s social distancing, many customers are now seeing higher bills because they are working from home. And, of course, there are many households which have seen a dramatic drop in income through redundancy, businesses closing, shorter/zero hours, etc.
How working from home impacts customer bills
Our data scientists have done some initial analysis using smart meter data and found that a typical household moving from working out of home to working at home will use around £3-£5 per week more energy at the level of the government’s energy price cap (read the analysis in full here). There’s two things to note about that – an Octopus customer pays less than the price cap, and we also expect this £3-5 weekly figure to come down with reduction in gas usage as we start to hit warmer months.
I am conscious that for everything I write, there will be exceptions - and some very serious ones - but for most households, this extra energy consumption is not likely to be the big driver of hardship. Indeed, for households with the same income as before, the increased energy cost of £3-£5 per week is a lot less than the typical cost of commuting (about £66/month). Of course, in a household where one person has lost their job, and another is working from home, they’ll see drop in income and higher energy costs - and similarly for people with commission and other variable earnings. We recognise those differences. Similarly, we also know that for many households lockdown has led to lower outgoings. Everyone’s circumstances are different, but on the whole, drops in income are more instrumental in making it difficult to pay energy bills than the fact that people are using more energy at home.
So, what are we doing to help when people have had big drops in income as a result of Covid-19?
First – we signed up to a government charter which outlines the support energy companies are voluntarily giving to customers.
This has been covered by the media “energy companies to waive bills” or similar, but when you read the charter it’s much more nuanced. For example, here's the section on helping people whose finances have been impacted:
‘Based on individual circumstances, this could include:
- Considering reassessing, reducing or pausing debt repayment and bill payments for domestic customers in financial distress.
- Considering referring customers who are struggling to pay to third party debt advisers such as StepChange and Citizens Advice.’
This fairly low level commitment is the current reality not just for Octopus customers, but we believe for customers of other companies as well.
We’d love to do more – and our team and I have been working night and day with other energy companies, EnergyUK (our trade association), Ofgem and Government departments (BEIS, Treasury) to try to find a solution for people who need it.
I’ve been asked why Octopus aren’t, for example, just giving all customers a blanket payment holiday – or even writing off bills. I heard someone on the radio saying “these energy companies make so much money, why can’t they help?”
I’d like to show respect to customers and all readers by responding to this candidly – even when it could mean my words are misrepresented – but I’d rather be open and clear than opaque and evasive.
Energy companies - at least most - don’t make shedloads of money. Octopus lost £29m last year. Our rivals, Bulb, lost £129m. And here’s Centrica's share price over the last 5 years:
Of course - there’s a reason for all these. In our case, and perhaps Bulb’s, we’ve been investing in growth - payments to comparison sites, for example, are not cheap. In the case of the incumbents, their inefficiency has made it hard to handle price competition from companies like ours.
But underlying it is a fact of the modern energy market: margins are wafer thin. The CMA (government authority) reckons energy companies should make 1.25% margin. We’re very efficient and target 3% - and expected to hit something like that next year. This year was roughly breakeven at what’s called the EBITDA level. I can’t speak for other companies - but this is the way energy should be - super low margins meaning that customers get better value. That’s exactly what we’ve been fighting for since we were founded - better value for customers.
So as a typical example from the numbers above - If a company makes a 3% margin, then for every customer spending £1000 (roughly the average annual energy bill), it makes £30 profit. If a single customer doesn’t pay, it loses £1000. So a single customer not paying wipes out the earnings from 33 others. So if just 1 in 33 customers doesn’t pay, the company goes from profit to loss. On the CMA’s 1.25% figure, it’s worse - 1 customer not paying wipes out the earnings from 80 other customers.
At Octopus, we take a long term view of everything - it’s why we’ve invested in the systems and people to make energy cheaper and greener, rather than focusing on short term profit.
So we are hugely aware that a time like now is a time to focus on doing the right thing - and I’m very happy to take a financial hit throughout this period to help customers affected by Covid-19.
But from the numbers above, you can see that we can’t take a massive hit. Helping 3% of customers is enough to send a company like ours into losses - and the numbers in energy are huge.
Our estimates are that 10-20% of UK households could see significant drops in income from Covid-19, so let’s take the middle of that - 15%. If we help 15% of customers by waiving their bills, the first 3% wipe out any profit. The next 12% are pure losses. Using Octopus as an example - we have 1.5m customers - so our revenue is about £120m a month. 12% of this is £14m.
So Octopus would be losing £14m a month. If the Covid-19 crisis lasts 3 months, it’d be £42m; 6 months, £84m. That just wouldn’t be sustainable. And of course, the economic impact could hit payments for longer than the immediate health crisis.
And that leaves us in the difficult position that we cannot help everyone we would ideally like to.
Instead, we’ll be working hard to ensure that customers who can afford to pay keep doing so, and that we do everything we can to help those who’ve been affected on a case by case basis - but we’ll need to be selective and that’s hard. Really hard.
Which is why we’re working tirelessly with other energy companies and the government to see if there could be a uniform approach across all companies to provide standardised levels of help - and mean that it’s not down to the lucky dip of which energy company you’re with, but your circumstances, which define the outcome.
And it’s why we ask people to be understanding - we’re working hard to ensure we push our own finances to the max to help everyone with service, and those who need it most financially. And we know that our customers will do the same.
With everyone doing their bit, we can all emerge from this crisis together. We’re just at the beginning and we’ll push in every way we can to try to make things work for everyone.