Utility Week

28 | 20TH - 26TH SEPTEMBER 2019 | UTILITY WEEK Customers Interview C hris Train took up the job as chief exec- utive of what was then National Grid Gas Distribution in the midst of a major transition for the company. At the beginning of the year, National Grid had begun spin- ning off the business into a separate entity, with a view to selling off a large stake. But none of this was new to him. Train began his 36-year career in the energy indus- try working for British Gas in 1983. A decade later, Train joined Transco – the gas distribu- tion business responsible for operating four of the eight regional networks around Great Britain. He would remain part of the company, through its various guises, all the way up to the announcement of his retirement in February this year. When Train was selected as the first chief executive of the newly independent National Grid Gas Distribution in October 2016, he had already been serving as the director of the business for more than a year – overseeing the separation for which the company won a Utility Week Award in 2017. Among his first tasks was to forge a new identity for the business, which shortly aŽerwards was renamed to the now familiar Cadent. Speaking to Utility Week, Train is beaming with pride. He believes the new identity has really captured the spirit of the organisa- tion, something he reflects on with "slight amazement". "As a long-term industry participant, I've been through many branding changes of organisations with lots of potentially scepti- cal people around that change," he remarks. "But you go around, particularly the inter- nal business, and increasingly externally to the customer, and people are understanding the organisation and what the organisation is about." Train says the company's stated mission – keeping its customers warm and safe – is reflected in its performance: "The regulatory results have improved across the period – year on year delivering the outcomes in the regulatory formula. And so that drumbeat of performance and delivery to customers has been really helpful to the business." At the beginning of his tenure, the com- pany was something of a laggard, performing the worst in customer satisfaction surveys on interruptions and connections and missing multiple targets. Since then the gap has narrowed signifi- cantly. There have been marked improve- ments in its customer satisfaction scores and several of the targets it was previously missing are now being met. Nevertheless, the latest annual report from Ofgem shows the company is still behind on some counts. There is still work to do. Regulatory developments Train's stint at the helm of Cadent has seen some major developments in the regulatory and policy environment for gas networks – some of them to their benefit, others less so. The latter includes Ofgem's promise to cut network returns to the "lowest ever" level for the second round of RIIO price controls beginning in 2021 for gas distribution. In May, the regulator confirmed the meth- odology it will use to set most of the price controls, which if applied at the time would result in a baseline return on equity of 4.3 per cent. This is around half of the equivalent figure for the current price controls. The sharp reduction was prompted by concerns that the first set of price controls were overly generous, particularly to gas distribution networks. In its response to a consultation on the methodology, Cadent was highly critical of Ofgem's decision to set the baseline half a percentage point below what it considered the true cost of equity to reflect the expecta- tion of outperformance by networks. The company described the measure as "conceptually flawed", "arbitrary in nature" and "a significant departure from regulatory precedent." But speaking to Utility Week, Train is reluctant to pour scorn on the regulator, instead extolling the virtues of the RIIO framework in its current form and emphasis- ing the difficulty of Ofgem's position. "One of the real benefits of UK regula- tion has been the stability that has meant it has attracted long-term investors into the business," he explains. "And particularly for businesses that take a lot of capital and capital investments, attract- ing capital at a low rate is very important." He continues: "The regulator has the role of balancing that off against the needs of short-term and long-term customers. So I think it's important that they get that bal- ance right. And I think within the consulta- tions, they are wrestling with the best way of achieving that." Pressed on whether Ofgem has struck the right balance, Train says "time will testify". "The methodology is sound. What are the right numbers in terms of the outcome depends on how global markets move." The claims by organisations such as Citi- zens Advice that energy networks are mak- ing billions of pounds of "unjustified profits" have provided excellent fodder for a Labour party arguing for them to be taken back into public ownership. When Utility Week asks for Train's thoughts on the matter, a press officer inter- venes, saying this is a question for the new chief executive Steve Fraser. Network achievements But Train nevertheless lauds the networks' achievements: "We have delivered an effi- cient and effective energy system where costs have come down and the quality of service has come up through the period of privatisation of the industry. "And having lived through that as I was part of the nationalised industry as we were privatised, I think I'm very proud of that record of lower costs and improved service." The other major development for gas net- works, and one they have lobbied hard for, New 'silent revolution' for gas Former Cadent chief executive Chris Train talks to Tom Grimwood about the 'silent revolution' taking place among gas networks, and why the sector must now build the case for its continued existence. "What the gas is, is not particularly important to the customer. What's important to the customer is having heat as and when you want it"

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