A History of the Liberalised Electricity Industry in 25 Freebies Part 2: A Utilisoft Rubik’s Cube (circa 2016)

This is the second part of our series A History of the Liberalised Electricity Industry in 25 Freebies. Our object this time is a branded Rubik’s Cube, complete with 53 instances of the “U” logo of Utilisoft.

In part one of this series we discussed the twelve original Regional Electricity Companies (RECs) of 1990 in Great Britain, and their effective monopoly on the supply of power to end consumers. Today we fast forward to an era when electricity supply was no longer the preserve of the anointed few, and had become democratised.

But before that let’s consider the freebie itself. The Rubik’s Cube was named after its inventor, Hungarian professor Erno Rubik. It was first demonstrated in the mid-1970s, but not commercialised in Western Europe and the USA until 1980 whereupon it immediately became a craze – the Fidget Spinner of its day (more on that in a future blog). The BBC estimated in 2014 that 350 million cubes were sold around the world, making Rubik a rather wealthy man.

Our particular cube, it is thought, dates from much later – 2016 perhaps. The company that gave it out is Utilisoft, which still exists (and indeed appears to be thriving).

Utilisoft does a number of things as a company, but the aspect we will concentrate on today is its services to suppliers of electricity, particularly small ones and new entrants. Arguably it and its peers have been responsible for a historic shift in perceptions about who should be a supplier (clue: lots more people than previously suspected), and what it takes to be a supplier. The “democratisation” of the electricity supply business in Great Britain wrought by Utilisoft, ENSEK, Utiliteam and Dyball Associates, to pick a few, may have far reaching consequences.

But first things first: let’s go back ten years before 2016 and consider what Utilisoft was up to at that point. Back in 2006 one of its flagship products was software to allow a market participant to send, receive and compose what were called “flows” – i.e. industry messages – in the standard industry formats. This writer wasn’t a user of that software, but remembers a colleague relying on it to inform the market operator about electricity trades that had been conducted.

Now the interface was fairly rudimentary, but the product was functional and having something performing that role was absolutely essential because the not-so-dirty-secret of the electricity industry is that it runs on data, with tens of thousands of messages flying backwards and forwards every day to effect schedules, trades, meter reads and so on. Importantly, no matter how rudimentary the interface was at the time, it was 10,000% friendlier than the underlying message formats; and not speaking the language of flows and knowing which flow is needed in response to a particular other flow meant not being allowed to participate at all.

In the wider industry for years Ofgem had been wringing its hands about barriers to entry to the supply market, and had tinkered with obligations on larger companies to trade with new entrants and allow them to “hedge”. One thing it hadn’t really altered was the sheer complexity of business process and systems requirements – this was still a stumbling block for the vast majority of those pondering the market from outside.

Enter the companies like Utilisoft with products that combined an off-the-shelf pre-licenced supply company, market entry consultancy and thereafter dealing with the markets as an ongoing service, including all of those flows and business process maps. Utilisoft’s offering is called “Supplier in a Box”; Utiliteam has something called the “Universal Supplier Solution”; and others (e.g. ENSEK or Dyball) have similar. With those innovations, electricity supply was now accessible to the common man.

This had a curious pull effect: suddenly every one of those common men (and his dog) wanted his own supply business; even local government wanted in on the act. The number of suppliers registered in the market mushroomed. For example the number of nominally different entities operating in the Eastern region in Supplier Volume Allocation stood at 41 in April 2012, but 187 by April 2019.

This was astonishing amounts of competition. It was also for Ofgem a lesson in being careful what you wish for. Not every entity that was now operating in the market was truly capable of managing the risks of the wholesale markets, or providing good customer service (interestingly being able to bill the customer, traditionally a problem for small suppliers (see Independent Energy in 2000 for instance) was less of an issue with the third party service providers now present.

During 2018 there was a cascade of supplier failures, and “Supplier of Last Resort” exercises where Ofgem had to parcel up customers and allocate them to another, healthier, supplier. The list of SoLR casualties during 2018 included: Future Energy Utilities, IRESA, Gen4U, Usio Energy Supply, Extra Energy Supply, Spark Energy Supply and OneSelect. During 2019 we have so far seen the customers of Economy Energy and Our Power Energy Supply given to others.

Interestingly four of those companies were originally from the Utilisoft stable: Our Power Energy Supply, OneSelect, Extra Energy Supply and Future Energy Utilities.

Did Ofgem welcome this orgy of Schumpeterian creative destruction as part of a healthy competitive landscape? Not fully: the failure rate was making the national press, so a consultation on tightening up the rules appeared. Business plans would now be vetted, and the process of licencing generally tightened-up.

Utilisoft itself has apparently taken this recent tumult in its stride, with soaring profits and no mention of bad debts in its annual report for the year ending 31 December 2018. The name of the game is the increasing amounts of data that are going to be flying around the industry once we all have smart meters, half hourly settlement and faster switching between suppliers. On that basis, presumably, Utilisoft was acquired by Accel-KKR in 2017 (for £100m according to the Financial Times).

Does this saga in some small way prefigure a future when there are even more “suppliers” and we are all micro-trading our domestic electricity imbalances with Mrs Jones across the road in number seventeen using distributed blockchain ledgers – or is it just a craze akin to the Rubik’s phenomenon? Time will tell.

Back to Part 1

Forward to Part 3