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Direct Energy Customer Count Falls On Pullback From Low Margin Aggregations, Door-to-Door

Centrica Reports 26% Of North American Residential Energy Supply Enrollments Now Include Service Plan Or Connected Home Bundle

August 1, 2017

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

Centrica reported a decline in its North American Home energy supply customer count as it scaled back certain sales channels and focused efforts on higher margin customers in its Connected Home segment.

Centrica's North American Home energy supply customer count was 2.665 million as of June 30, 2017, versus 2.897 million as of December 31, 2016, and 3.040 million a year ago

Concerning the decrease in North American Home energy supply accounts, Centrica stated, "In Canada, regulatory changes required us to cease door-to-door sales. In the US, the regulatory environment, coupled with our focus on higher value customer segments, led to our decision to reduce door-to-door sales while we have also reduced our participation in auctions for low-margin aggregated customer books."

Centrica specifically attributed a decline of 66,000 customers due to the scaling back of door-to-door sales in North America. Collectively, in both the U.K. and North America, Centrica attributed a decline in 257,000 residential energy supply contracts to the roll-off of a number of collective switch deals in the U.K. and low-margin aggregated customer books in North America.

The aggregate North American Home (both energy supply and energy services) customer count was 3.536 million as of June 30, 2017, versus 3.769 million as of December 31, 2016 and 3.983 million a year ago.

Speaking to the decline in home energy supply and service accounts in both North America and the U.K., Iain Conn, Centrica Chief Executive, stated, "Over the last year our consumer division has seen a reduction in customer numbers of some 700,000. Out of this, however, over 400,000 have been because of choices we have made. We've exited certain channels in the market such as the bulk acquisition of customers, we've not renewed those. We've decided to dial back on our door-to-door programme in the United States. And we've ended some trials in the United States on services products. All of that accounts for over 400,000 of the reduction. That means the net underlying reduction is 276,000 customers. And that's made up of 570,000 or so from the energy business predominantly and growth of about 300,000 in the Connected Home. Those customers in the Connected Home are very valuable with very good gross margin quality. And what we are looking to establish is the trade-off so that we stabilise the underlying numbers and then start to see them grow as we deliver new propositions for our energy customers, new propositions for our services customers and deliver new customers to Centrica through the Connected Home."

Centrica said that it has installed 30,000 Hive connected hubs in North America. Over 80% of these hub sales were bundled with an energy supply agreement in North America

"In H1 2017, 26% of energy sales were bundled with one or more product, such as a protection plan or a Connected Home product, compared to 19% in H1 2016," Centrica said of its North American Home energy supply segment.

Centrica also confirmed that it would be exiting the U.S. residential solar market by the end of 2017. "Challenging market dynamics and falling margins meant we were unable to generate the volume of sales and installations needed to deliver profitable growth despite actions taken since H1 2016 on costs. Centrica’s participation in commercial solar in North America will continue as a part of the DE&P customer offering," Centrica said of the decision.

Centrica reported that adjusted operating profit for its North American Home segment (energy supply plus services) increased by 82% for the first half of 2017 at £60 million, up from £33 million a year ago, "reflecting our focus on more valuable customer segments, cost efficiency measures and reduced losses from the solar business following actions taken to improve the efficiency of its operations."

Centrica's North American Business customers segment reported that it was serving 577,000 accounts as of June 30, 2017, versus 590,000 as of December 31, 2016 and 597,000 a year ago

Regarding the North American Business segment, Centrica said, "We continue to look to expand our offering into new geographies and delivered increased gas and power sales volumes in the Mid-Continent, California and Canada. However, energy efficiency measures have lowered power usage per customer across the industry and total customer account holdings reduced by 13,000 or 2% during H1 2017, reflecting competitive market conditions, which are also putting pressure on sold unit margins, particularly in power."

The North American Business segment delivered an 81% increase in adjusted operating profit for the first half of 2017, at £112 million, up from £62 million a year ago

"On a local currency basis adjusted operating profit was up 57%, reflecting good gas optimisation performance despite the warm weather and non-repeat of commodity related imbalance charges from 2016," Centrica said of the North American Business segment

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