In an occasional series, some big utility customers tell Utility Week what they want - and need. This week Tricia Holly Davis talks to Tesco.

Tesco's advertising slogan "Every Little Helps" works equally well to describe the retail giant's view and expectations of its utility partners. With around 2,000 stores across the UK, employing more than 280,000 staff, Tesco's energy and water requirements are substantial. But its physical utility demands are just one part of the equation that enables it to deliver a consistent shopping experience and competitive prices.

"Above all, our organisation needs a secure, stable, reliable and affordable supply of energy and water," says James Summerbell, Tesco's senior buying manager in its energy and petroleum division. In terms of service, he says: "We desire flexibility, accuracy and transparency."

Summerbell admits that this is easier said than done. "Tesco is a small group of organisations with a very large electricity requirement spread over a large number of individual sites," he says. "This means our total electricity consumption is in the same bracket as large energy-intensive industrial organisations, which presents a considerable procurement challenge."

Tesco falls into what is often referred to as the industrial and commercial market for utility services. This sector comprises a relatively small number of customers, but they consume a lot of electricity and gas. Industrial and commercial customers include high intensity users, such as cement manufacturers and metal working firms, as well as big retailers such as Tesco, which have multiple sites and a high aggregate energy consumption.

Continuity
The principal requirement for the industrial and commercial market is continuity of service. They will, on occasion, negotiate a contract that allows for service interruption if it delivers an advantageous tariff. However, this rarely occurs among the likes of Tesco which, due to the nature of its business, cannot afford to interrupt refrigeration and other systems integral to its operations and the standard of its core products.

"Tesco is first and foremost looking for reliability," says an energy analyst who specialises in the retail sector. "Second comes price. When you deal with the supermarkets, which have professional buyers, then there will always be tough negotiations. These will often be up for renewal on an annual basis."

The downside of this approach is that it creates a logistical nightmare for utilities, particularly when it comes to providing detailed levels of data that translate into accurate bills. These are the next most important item on retailers' must-have lists, and their biggest gripe.

"The retail sector wants a single contract and a single aggregated bill but, at the same time, wants the ability to drill down to consumption levels at any one of their sites at a high level of granularity," the analyst explains.

Data
For instance, a company may want a supplier to provide data to track whether a single light has been left on overnight, with the aim of identifying where there is abnormal energy consumption so they can isolate the problem.

"Any supplier dealing with a big chain like Tesco will need to provide that level of data," the analyst says.

Failure to do so, he says, will not only strain relations, making contract renewal less likely, but is likely to result in payment delays. "Big retailers will find reasons to query a bill to cause payment to be delayed. That is the nature of the beast."

Summerbell acknowledges that Tesco's vast number of sites creates additional logistical burdens, such as bill validation, which ultimately can affect service delivery and costs. Unlike the billing system for individual households and the mass market, which utilities generally calculate based on estimated usage, Summerbell says Tesco will pay only for the energy it has actually consumed. But this is not unique to Tesco. Most industrial and commercial customers make similar demands.

"Billing accuracy has been a perennial problem for us historically," says Summerbell. "Energy and water bills can be quite complex and with so many sites, validation of these bills presents an administrative challenge, for which we use a third party validation service.

"We also undertake regular historical audits of our bills to ensure nothing has been lost in the detail. There is a surprising amount to be found by doing this."

Billing
Tesco has also worked with its main suppliers to increase the transparency and simplicity of its bills. "Working in tandem with our current electricity and gas suppliers has greatly improved the [energy] billing issue over time."

Water utilities, on the other hand, have great room for improvement. "Water remains the most challenging area from a service perspective, with sporadic, often inaccurate bills sent out by often indifferent suppliers," says Summerbell.

Tesco has also been "taken aback" by the reluctance of certain water companies to allow it to install automated meter reading technology, says Summerbell. "Some have imposed unreasonable conditions or charges, even though they will benefit from the information that we will share freely," he says.

Improvement
The most forward-thinking organisations have recognised these issues, and Tesco, consequently, has seen some improvement. Several of the larger water and sewerage companies now offer more sophisticated and dedicated account management, they deliver consolidated bills and actively work with Tesco's procurement team to improve their overall service.

Despite this, when asked to name the one service that would make life easier, Summerbell, without hesitation, cites the ability to select a single water supplier.
The water industry does not naturally lend itself to competition due to the bulk of the cost being embedded within the network infrastructure. He says Tesco therefore does not see the introduction of competition as being something that will drive significant cost reductions in its water bills.

However, he notes: "A key advantage for us would be the ability to choose a single supplier who could provide an enhanced billing and reporting service - as a minimum, accurate, consolidated electronic bills based upon automated meter data where available."

Connections
Next to that, Summerbell says Tesco would like to see improvements in the connections services for electricity, gas and water.

Energy suppliers could also do a better job of anticipating how Tesco's contingency plans and longer-term energy strategy will affect the stores' service demands and the buyer-supplier relationship. For instance, though the specifics of Tesco's contingency plans are confidential, Summerbell says that it is common knowledge that all of its larger stores have back-up generation in the event of localised power failures. In addition, he highlights the fact that, as part of its climate change strategy, Tesco is installing a number of on-site, small-scale combined heat and power systems, which will also help to reduce its dependence on external suppliers.

Tesco has openly stated that it views energy efficiency as much as a money-saver as it does an ethical responsibility. In a statement filed with the Carbon Disclosure Project last year, Tesco said it was on course to meet its target of halving the average energy use of its UK buildings between 2000 and 2010 two years early - in 2008. It is also in discussions with some of the farmers that supply its stores about developing renewable energy projects.

Dramatic change
With the traditional utility buyer-supplier relationship teetering on the brink of dramatic change, particularly in the face of self-imposed and government-mandated energy reduction targets, energy suppliers must re-think old business models. Providing a service to help clients such as Tesco cut their consumption and meet their environmental targets may seem like turkeys voting for Christmas, but it is exactly that kind of solution that promises to swing the competitive advantage in favour of one supplier over another.

British electricity suppliers could do with tearing a page from the book of their US counterparts, where utilities sell smart building services to their customers, helping to ensure air conditioning and lights are switched off overnight, for example. Though the concept of smart buildings is beginning to take off in the UK, to date utilities have not exploited it as an added service, and one that could offer a profitable new revenue stream.

Overall, Summerbell says: "The key priorities for Tesco when procuring energy and water are the ability to offer maximum flexibility with the ability to deliver accurate, reliable and transparent bills. We also expect good value for money for these services, naturally."

Not too much of a tall order, then. But at least every little effort helps.

Tricia Holly Davis is a freelance journalist.

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