Utility Week

8 | 19TH - 25TH OCTOBER 2018 | UTILITY WEEK Interview Like others, Emery was pleased the reg- ulator opted against a mid-period review. "Ofgem's report for the first two years shows a sector improving, costs reducing and customers getting a better service. We have investment programmes in place for the eight years. We've got relative stability, at least within our framework until 2023." But would a five-year RIIO2 settlement make for a bet- ter future model? "I suppose eight years may seem a long time when you are sat behind a regulator's desk. But I'm happy to live with either." Even if that poses issues around fit-for-purpose regu- lation? "The regulator is probably struggling to keep up. But, if other people were honest, I think everyone is struggling to keep up. That's symptomatic of a market going through massive change and it's to be expected." Despite these demands, ENW's figures are bearing out Emery's positivity, with cost reduction around 15 per cent overall and on track to come in under the company's RIIO target in real terms. Meanwhile, reliability contin- ues to improve, with fault rates falling. "At the moment we're in good shape but you've got to handle both – to keep the plates spinning while you manage change – that's the nature of our business." To capitalise on the incentives and opportunities, Emery has encouraged ENW's senior leadership to work as a cross-functional team, allowing them more time for the change agenda. Early wins have come from improv- ing controls to reduce non-compliance on safety and cus- tomer service. "If you can eliminate non-conformances, which eat management time, your leaders have more time – rather than worrying about today's crisis." Like utilities everywhere, it seems cultural transforma- tion is happening across ENW. Emery is keen to grasp the nettle, pointing to his recent report to his finance team entitled The View from the Hill, the Changing Landscape. "Because we're a small DNO, we can't compete on econo- mies of scale. Freeing up time to continuously improve and innovate is vital. I make it clear we're not just here to keep the lights on, that's what we've done for the last 50 years. We're a critical enabler, and we're acting on that." Certainly, while relatively small, ENW has a reputa- tion for innovation which Emery puts down to an open management mindset and engaged workforce – includ- ing its engineers. "In ENW we have been smart enough to say to them, 'okay, if you can do it, let's do it and take advantage of the situation'. "We can be more fleet of foot, so we can excel. You can get your arms around this business and we are turn- ing our potential weakness into a strength. We've got the skills, which is where we've been fortunate." Monetising such innovation has been a key task for Emery, who points to ENW's CLASS programme of installing cutting-edge voltage controllers in its substa- tions, expected to save customers £100 million over 25 years. Also, the Celsius scheme of cooling substation transformers to run at higher loads for longer. ENW is also starting to see more decentralised genera- tion on the network and recently made a call for capacity in seven different areas of the business. It is working on a frequency response project to offer services to National Grid, exploring the value of loss load, open networks, energy efficiency, how DNOs can help vulnerable cus- tomers more, flood impacts and on delivering reductions in energy usage. And despite the doom-mongers, Emery says the infra- structure is there, or can be, to support and sustain major change. "Networks are pretty flexible. We've already seen them transmitting electricity one way, now both. The legacy of the past is that there is a lot of redundancy in the sys- tem that we can liberate and use at relatively low cost. And the DSO concept takes that further, using automation to make the most of existing assets and, also, using new distributed generation assets." Constructive dialogue with the regulator and govern- ment will be vital, believes Emery. "Changes don't come smoothly. I think EVs are going to be like that – there won't be a rush until there is one. This means that what- ever the framework is going to be for ED2, it needs to be flexible enough to cope with volatility. The main role of a DSO is becoming pretty clear, as a market enabler and facilitator. We will need to be switched on to what people want and respond quickly. I would expect that govern- ment would work with industry players like ourselves to understand the consequences of actions they may take." One piece missing from the distribution jigsaw, he says, is a high-quality battery solution. "If there was a tech that was lower cost, more carbon-neutral, and very effective, things would start to move at a hell of a pace. A storage facility like that would be a really powerful tool to develop the network." It's no secret that Emery is a fan of blockchain, some- thing he believes could have real significance for the DSO model, when participants want to deal with their local DSO and the transmission system operator (TSO). "You need a platform to facilitate that, which is how block- chain works. It's probably the right technology to enable full DSO/TSO market interaction. We're still working on it, but it is something we're actively engaged with." Amid this disruption, risk is increasing, says Emery. As well as technological and commercial risks, there is severe political and economic uncertainty – not least around Brexit. When I point out that two years ago he had not been unduly concerned about Brexit, his reply is direct: "Well I am now." He elaborates: "I'm not worried we'll go out of busi- ness. I'm worried that if the economy is really buoyant, some of these changes will come faster. People will want EVs, government will have funding for infrastructure projects. If the economy is lacklustre, that pace of change will slow. It's a big deal for us." He continues: "We don't know what the outcome of Brexit is going to be. That means a lot of uncertainty and normally that means risks increasing, not decreas- ing." So while some may view the business's returns as high, Emery warns against pushing them too low in such unpredictable times. The attractiveness of the UK to investors is key. Any drop in the value of dividends, or a volatile exchange rate, adds pressure, as does turmoil in global markets. Many of ENW's investors are based in the US. The prospect of renationalisation is also unsettling. "The government must decide whether regulated busi- nesses providing some semblance of order to enable markets to develop and evolve is the right model. Our view is it is." So, two years in and despite his standout positivity, it seems there are some issues keeping Emery awake at night. "Well it does worry me, because I'm already talking to shareholders about what the outlook for ED2 will be. There is no short-term panic, but I think once we get past Brexit, and things become a little clearer, people will start to make decisions." "We will need to be switched on to what people want and respond quickly."

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