Utility Week

Utility Week 8th November 2013

Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government

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Page 14 of 31

Policy & Regulation Market view Another direct and monetary-based community benefit that drew significant support was that of a community share or stake in an energy project. Again, this has been trialled sporadically by onshore wind developers in the past, and has been given a new lease of life in recent months by the onshore oil and gas sector, which has promised a 1 per cent share of revenues to communities near producing oil or gas wells that have been hydraulically fractured. In contrast, education-based community benefits received a comparatively tepid response from respondents, with 37 per cent of respondents backing local educational initiatives and just 20 per cent supporting bursaries for students. Both options are only relevant or attractive to certain demographic groups within communities and the comparative slump in support compared with the more direct benefits mentioned above is no great surprise. So what are the implications of all this for energy operators in the UK? The good news is that community benefits remain a useful way of increasing public acceptability on the ground, despite criticism from some quarters that they are a blunt policy instrument. However, as our research has shown, support is more likely to swing in operators' favour if they address the need to offer direct benefits with clear monetary value to individual households rather than more collective alternatives that benefit only certain parts of the community. It is for that reason that the phrase "community benefit" appears to be a bit of a misnomer – what we are actually seeing is an age where "household benefit" is the key to unlocking local support. So much for being all in this together. Karl Smyth is an account director at PPS Group Community benefits… 38%   said they make a positive contribution when the benefits package is targeted 21%   they allow local people to share said economic rewards of energy projects 24%   they are a bribe used by developers said to gain support It's all in the plan With water companies just a month away from submitting their business plans, Sonia Brown sets out some final thoughts for boards to consider T hroughout the whole price review pro- target figure in mind when it comes to final cess, the most important relationship bills. It may be that a company's customers is the one between the companies and their customers. We have said this all along want to see significant improvements in serand now want the companies to show us vice or better environmental outcomes rather how successfully they have talked to and lis- than a reduction in bills. For a company that is not proposing falling bills, I would expect tened to them. There are real opportunities for compa- their plan to be supported by clear evidence nies to pass on efficiency savings and the that this is backed by its customers. Evidence like this is going to be important benefits of the low cost of finance to their in each company's plan. We'll be looking customers over the next five years. for a clear, coherent and eviI am hoping that companies are denced "golden thread" rungiving this serious thought. At a ning through the whole of a conference earlier this year, I used plan so it is clear how each elethe midpoint drawn from analyst ment fits together. This will be reports of a 4.1 per cent vanilla particularly true where a comreturn to highlight what a large pany is proposing major stepimpact a 1 per cent fall in the cost changes in its performance. of capital could have on customer We will want persuasive evibills. I could see at the time that dence that shows that such companies could do better and I "While some improvements are realistic and hope that companies will do better companies than that, given the opportunities haven't always achievable. Companies' final plans presented by the current economic believed us, should show us that their environment. boards accept full accountabilWith nominal bond yields down we meant it ity and are responsible for the around 1.2 per cent since prices were when we said set in 2009 and record low interest we want water leadership, transparency and governance of their managerates, I would like to think that in ment teams' work. their business plans some – if not companies to We want to be able to all – companies will go lower than listen to their understand the assurance prothat, especially as we will be setting customers" cess that the board has gone retail margins on top of their capital costs. And the market uncertainty that jus- through to reach the point where it is satistified a conservative return on equity at the fied that the final business plan will deliver the best for its customers. This means we height of the financial crisis has passed. Efficiencies from setting separate controls expect to see more than just a list of meetfor retail and wholesale along with other ings. We want boards to show how they changes such as totex, water trading and the have challenged and held their management use of an average cost to serve control create teams to account. Our information note Board Assurance the scope for bills to be reduced even further. Can companies show how they listened for the 2014 Price Review – Board Leadership, to their customers? While some companies Transparency and Governance has opened haven't always believed us, we meant it further opportunities for companies to demwhen we said we want water companies to onstrate that they are well governed. Sonia Brown,chief regulation officer, listen to their customers. That's why we genuinely do not have a Ofwat UTILITY WEEK | 8th - 14th November 2013 | 15

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