News & Insight

Iresa's energy ban - why cheapest isn't always best

Oliver Jones

In its attempt to achieve the lowest price on the market, Iresa compromised on customer service.

In its attempt to achieve the lowest price on the market, Iresa compromised on customer service - with disastrous results.

Exceptional customer service is the backbone of XLN’s business model. Sure, we offer great deals and value to our customers, and are improving our products all the time – but that’s only half of the story.

Customer service is how we provide value to our customers which no other brand can imitate. It’s one of the reasons we’ve grown from a tiny start-up to a company with 400+ employees.

And there’s no better example of where utility firms can go wrong on customer service than Iresa, an energy firm that has not only failed to grow, but has actually been banned from accepting customers until it cleans up its customer service provision.

With a shocking 40-minute average wait, and serious concerns raised by vulnerable customers about its business practises, Irena is a vanishingly rare case where Ofgem had to step in. For the next three months, Iresa will not be allowed to increase direct debits, ask for one-off payments or accept new customers.

A case of “you get what you pay for”.

The danger of companies like Iresa is that they are all too tempting to consumers looking to bag a great deal. Iresa appears on price comparison sites all over the web, with its deals stacked favourably against the Big Six and other providers.

But customers lured in by Iresa’s low prices found themselves subject to unexpected price hikes, unable to log complaints, and without a system for managing potentially vulnerable customers.

One of the main questions being raised by the Ofgem investigation is whether Iresa gave legally sufficient notice to customers experiencing financial difficulty, before taking debt repayments out of their accounts. That’s in addition to absurdly long waiting times, and lack of response to inquiries.

Poor business model from the start

In its attempt to achieve the lowest price on the market, Iresa compromised on customer service. A low face-value price meant that the company has had to quickly raise prices on its customers to cover costs, while overstretching and underinvesting in its customer service teams.

The company now faces the impossible task of extending its call centre hours, bringing down its call waiting times, speeding up its responses to emails, logging complaints properly and clearing an enormous backlog of emails.

And it has to do all that without being able to generate the extra revenue to pay for those improvements, as Ofgem’s ban cuts its supply of new customers, and any gains to be made through price hikes.

End of an energy company?

Failure to comply with Ofgem’s demands could lead to Iresa’s license to operate being revoked, and the end of the company. Iresa has weathered a similar storm before, with a similar ban in 2016 – but judging from the complaints it’s receiving, it hasn’t cleaned up its act in the interim.

Iresa is trapped in an impossible dilemma: with its reputation damaged, it’s reliant on rock-bottom offers to gain new customers. But at those prices, it’s unable to generate enough revenue to serve those customers properly.

It’s a downward spiral that can only end in the closure of the company, or a total overhaul and rebranding. Until then, it’s a lesson and a warning to all utility providers not to cut corners on customer service.