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Interview increase, it is understandable that the overSmith acknowledges that privatisation, "RPI-x was aimed at all bill will increase. When the component enacted in 1990, bought with it pressure to parts go down – as distribution charges are driving efficiencies and drive down costs. "We sweated the assets set to do potentially as early as March next longer," he says. "Not because we just left reducing costs, and it year for North West customers – I can only them, but because we found different ways of affected R&D in the hope that the huge work we have put in to doing things, new technologies and so on, but reduce costs will be reflected in customers' the technology is coming to the end of its life." networks" bills." Meanwhile, the networks have to be No doubt about it, it's impressive that the networks expanded and upgraded to cope with new power stacan reduce prices while maintaining investment. Howtions, distributed generation and a forecast boom in ever, some would take issue with the networks' finances. demand, for example for electric vehicles. "We have to Several have come under fire for exploiting a legal loopchange, and through privatisation we lost of lot of innohole that allows them to avoid taxes. The Independent vation – RPI-x was aimed at driving efficiencies and on Sunday recently reported that Scotia Gas had avoided reducing costs, and it affected R&D in the networks. But £72.5 million in tax and that UK Power Networks and there's a need now to start reinvesting." Electricity North West had both saved more than £30 milHence the LCNF, which has provided £500 million lion. It's part of the wider debate raging about companies from August 2009 for five years to fund trial projects paying tax, but Smith points out: "The network operators that will help transform the grid. Among its successes comply with all UK taxation and legal requirements." is a pilot by Electricity North West that allows the netHe says the ability to cut charges while boosting work to accommodate much higher demand without the investment is due to smart planning and the longer need for expensive reinforcement. It does this by allowdepreciation of assets allowed by the new eight-year reging customers to access latent capacity on the condition ulatory cycle. "We must always ask 'what can we do at that they agree to be cut off in the event of an emergency the least cost to maintain the network's effectiveness and need for the capacity elsewhere. It is this kind of innoefficiency while at the same time putting innovation in vation that will allow networks to adapt to the changing so in future generations, we don't need to throw copper and growing demand for capacity. in the ground?'" One of the key innovations affecting the networks is It's an attitude that many would welcome from the the introduction of smart meters. It is no secret that the suppliers, although Smith, ever diplomatic, declines to network sector believed it should have led the smart criticise them. He does explain why the networks felt meter rollout, as has been the case everywhere else in they were better retaining their own trade body than jointhe world. Indeed. Many of Smith's members are vocal ing forces with Energy UK, which arose from the merger about the foolishness of awarding the rollout to suppliers of trade bodies including the Electricity Retail Associaand the problems it will cause when the networks need tion and the Association of Electricity Producers in 2012. to intervene in installations. He is far too diplomatic to The networks declined to join the umbrella organisation. be drawn on this, saying with a smile: "That decision "The networks have always been different, we have our was made some time ago." He is keen to emphasise that own story to tell, which is why the old Electricity Assothe ENA and the networks are represented at every level ciation came apart in 2003," says Smith. The networks of the rollout and are willing to do what it takes to make also have a strong sense of camaraderie and tend to stick it work. together. This club mentality often works in their favour, It is now being whispered in Whitehall that given for example when sharing ideas and resources, but does the pressure piling on suppliers and the prospect of a have its critics. Independent DNOs that attempt to comprice freeze, it could make sense to hand the rollout pete in the market, for example by providing connecback to the distribution network operators (DNOs) at tions to new housing estates, complain bitterly that the the 11th hour. Does he think it likely? Again, Smith won't networks block fair competition. Ofgem has given netbe drawn, though when pressed he admits the move works until the end of the year to meet a series of compe"wouldn't be impossible". tition tests, which they seem to be slowly waking up to. The DNOs seem better equipped to handle the rollout, Created from the ashes of the Electricity Association, which they would do on a street-by-street basis. They the ENA recently celebrated its tenth birthday. It now would be unencumbered by the competitive pressures of employs 30-plus staff and has taken a range of extra the suppliers – and perhaps less likely to have the door functions, including hosting Ofgem's distributed genslammed in their face by an irate bill payer. All in all, eration forums and co-ordinating industry responses to the networks are sitting rather more comfortably than electrocutions and other incidents. the suppliers at the moment – although the big six have Smith has been there since the start, joining the been quick to point to rising distribution costs as one of organisation as policy director before it officially came the factors in this autumn's price hikes. into being. He joined from the British Retail ConsorIt is a point the networks take issue with. Smith tium, where he oversaw the introduction of chip and pin acknowledges that network charges are rising in 2013/14, technology – a complex programme that was achieved but he points out that this regulated price rise was within five years, and might just contain some lessons agreed back in 2009. "The key point here is that durfor the smart meter rollout, if anyone thought to ask. ing the height of the financial crisis there was a look to Protected by their monopoly status and economic defer some of the costs towards the back end of the price regulation, the networks are able to focus on service review, and that's what we're seeing coming through delivery rather than competitive pressures. This was now," he says. Under the next price review, the first using demonstrated during St Jude , when fellow networks lent the new RIIO model, network charges are set to level out a hand to UKPN to get the lights back on in thousands or fall. Steve Johnson, the chairman of the ENA and chief of homes. They are not without fault, or without critics, executive of Electricity North West, challenged suppliers but the networks remain defined by their public service in last week's Utility Week to reflect these cuts in customethos – and that's no lost cause. ers' bills, saying: "When the component parts of a bill 10 | 8th - 14th November 2013 | UTILITY WEEK