Utility Week

38 | MARCH 2023 | UTILITY WEEK Pan-utility Roundtable There may be trouble ahead Utility Week and Marsh invited senior industry figures to identify the risks that most threatened the energy and water sectors, and to discuss how they had evolved over the past 12 months. I n 2022, Utility Week and Marsh partnered to create the first UK Utilities Risk Report. This endeavour was driven by a recogni- tion of the increasingly complex risk land- scape in which companies in the UK's energy and water sectors are operating and a desire to support senior leaders trying to navigate their way through. Ahead of the launch of the 2023 report, we convened a roundtable of senior indus- try leaders to consider how the risk land- scape has evolved over the past year and the impact this will have on the five-year outlook. Unsurprisingly, the current cost of living crisis was high on the agenda, with attend- ees agreeing that the fallout from the eco- nomic downturn will continue to be felt by customers and companies for years to come. One customer director from an energy retailer said that this is inextricably linked to a range of risks facing utilities, including bad debt, cash flow, customer legitimacy and company reputation. For customers themselves, many are in acute distress, with some facing the devas- tating prospect of choosing between turning on the heating or feeding their children. "That is an incredibly difficult conversa- tion to have," the energy director added. "We can refer people but, bluntly, customers look to you to solve those problems for them, but we can't." The director said the sector is "facing a downward spiral" if it does not address the "interconnectedness of these risks". A major concern for them is the risk of a perceived lack of action from utilities to address afford- ability issues which could affect long-term customer legitimacy. One regulatory director from a water com- pany agreed that customer legitimacy repre- sents a significant challenge for the sector, particularly in relation to resilience risks. "I think one of the things we know we're going to need in order to deal with some of the resilience risks is a massive programme of investment," they said. "At the moment, certainly from a water perspective, the sector is so toxic that getting any kind of customer support for the kind of bill increases that will be needed is going to be really challenging." Increased politicisation There was consensus among attendees that current regulatory frameworks will be inad- equate to tackle the challenges ahead. "I'm increasingly worried that the regulatory framework is not acting as an enabler of better management processes and, actually, might be getting in the way of it," the water director added. "I don't see how we recover the asset health deficit with the current regu- latory toolkit. And I don't see how we achieve that without the customer legitimacy. All of these things are interdependent." One executive from a network operator insisted that the increased politicisation of the sector is contributing to a woefully short- term approach from the regulators. "I think there is a real deficit in long-term policy, which is probably one of our biggest long- term risks. When you've got an infrastruc- ture asset-heavy business, you need to know what the long-term policy looks like so you can invest with confidence," they said. Traditionally, they added, politicians would be expected to take a more short-term view which reflects the election cycle, while the regulators would take a longer-term view. "What we're seeing now is a lot more politi- cised. The regulators know their names are going to be in the media as well, so they are doing everything they can to cover their back- sides by kicking it out to all of us [utility com- panies], even when many of the challenges are based on their decisions over decades in some cases. But it's everybody's fault – except for the politicians and the regulators." According to another attendee from an energy company, the complex dynamic between politics and regulation has created significant uncertainty for both the sector and for investors. "The current political and regulatory framework is certainly volatile," the net zero and policy director said. "The reality of three different prime ministers with three different approaches to interven- ing in the industry in dramatically different ways has been a short-term challenge, but

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