Utility Week

8 | 13TH - 19TH SEPTEMBER 2019 | UTILITY WEEK Interview disappear even if Labour loses the next general election, Clancy warns. "They would be ill advised if they think this is a problem that only exists if Labour wins an election. They are wrong, the seeds of this were laid by them ten or more years ago when the reputation of the industry was trashed. "When you are providing a key public good in private hands the level of public accountability is magnified and that debate is not going to go away." Any government will have to respond to the concerns that have stoked the calls for nationalisation, particularly in the current fevered political environment. "You can't be confident that just because you have a government of the centre right you are not going to be called to account," Clancy says, pointing to BEIS' vigorous reaction to the recent outage. "They were all over it. The industry would also be well advised to engage on this. Proud as we are of the industry, they have issues to address in the public's mind, they are considered to be pricy and a bit removed from the communities they serve." And discontent with the privatised utilities is deep rooted, Clancy says: "If you go back to electric- ity privatisation in the 1990s, it was amidst a range of privatisations and nobody understood the long-term con- sequences of – having markets in what are staples rather than commodities." The doorstep supplier mis-selling scandal, which erupted nearly ten years ago, marked the turning point in the relationship between the industry and its custom- ers, he believes. "The industry went wrong at a consumer level and was embroiled in the poor behaviour around doorstep selling and it has never recovered from that. That was a negative feature of infusing market dynamics into what is a staple product. "In the public view the energy industry has inflated prices, now seems to have a security problem and is sometimes criticised for its speed of responses in relation to meeting agreed targets," Clancy says, adding that MPs have been happy to fuel negative narrative surrounding the sector. "Certain politicians are happy to continue that impression of what should be a well-respected and authoritative industry." "Being rational we know a number of those suppli- ers are very low margin, extremely difficult businesses to manage, but the image and public perception is that we are being overcharged for electricity." The diminished respect that the industry enjoys among the general public pains Clancy though. "It's a sad situation to see a great industry o'en maligned." The alternative to restoring public ownership is beefed up regulation, he says: "If you are going to con- tinue with the market, the regulatory framework needs to fundamentally shi' or you are going to face more calls for this to go on the public books." "At the very least" this means a "fundamental recon- sideration" of the philosophy of economic regulation that has underpinned the way the utilities have been policed since the early 1990s. "Price regulation assumes that people are rational economic actors but people are not necessarily economic actors, he says. He says the degree to which people want to switch, and what they regard as a reasonable level of security of supply, "is not necessarily front and central in regulatory processes". "In a way it's slightly too clever," he says, adding that few customers understand how the system works. A broader range of social and employ- ment objectives should be incorporated into the price control framework that governs energy networks, Clancy argues. "Energy regulation shouldn't just be about rate of return on assets but a wider range of social objectives," he says, add- ing that the main response to tightening of the price regime has been to cut back on staff. "The general response of regulated companies has been to cut staff. There has been innovation and infusion of technology but the primary response has been to cut staff over a long period of time. That eventually comes home to roost in terms of the ability to plan and design the networks of the future." This focus on price is potentially short-termist and doesn't necessarily fit the increasingly fluid nature of the smart networks that underpin an increasingly decentral- ised energy system. "When the industry was privatised the place to be was in big power generation. Managing those [smart networks] is going to be quite an exciting place to work but we are on a journey to know how you get the right people and right technology, and all of that needs to be built into price controls. "These companies are in a war for talent like any oth- ers and the regulatory framework should take that into account. It's much more competitive now for the best people and you are going to need the best people to develop the right solutions and the right infrastructure if you want to realise all these different goals. "The idea that staff shortages led to outages is too simplistic but the depth and calibre of the engineering expertise in the sector should concern any regulator," Clancy says, adding a nod to the work done on address- ing the industry's skills shortages through efforts to pro- mote diversity and inclusion in its workforce. But while acknowledging that the industry is tak- ing steps to co-operate on skills, he believes it could do more: "Robbing Peter to pay Paul is not a great policy." More important than ownership in Clancy's eyes is an agreement on what outcomes society wants from the energy sector. In particular, there needs to be an "honest conversation" about how to balance the issues of price, security of supply and cutting carbon. "We need a public conversation about the outputs we want from this sector and the best way of delivering. That will mean more democratic control and more workforce influence and engagement." The answer, Prospect has long believed, is to create a Bank of England-style body that could set out the long- term parameters of energy policy. Such a body would have a better chance of winning over the public to what may be politically unpalatable options than either the government or energy companies. That clarity wasn't supplied by the plethora of con- sultation papers that appeared just before Boris Johnson became prime minster, he says: "The white paper hasn't arrived we have a series of consultation documents that are piecemeal." But whatever the vagaries at Westminster, Prospect's membership will continue to deliver, Clancy insists. "Our members are proud of what they do, they are proud of their skills and their companies and what they do. "The enduring thing is that members – even though they have been in private companies for decades – believe they are delivering a public service. We are immensely proud of what they do and they manage significant risk." "When you are providing a key public good in private hands the level of public accountability is magnified and that debate is not going to go away."

• Cover