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Interview ings. ENW has proposed average price cuts of "There is a sensitivity about networks have privately estimated that their callout rate could as much as double. 11 per cent in the next price control period, Johnson was one of many that called the entire industry, and the largest of all the networks. for a network-led rollout. Would it still be Until last autumn, ENW was widely tipped like it or not, people don't an option for Decc to put the networks in to win coveted fast-track status in the first always see the difference charge? "Not in the timescale they are talkround of RIIO. In the event, only WPD was accorded that honour, with ENW narrowly between us and the big six" ing about," he says. "I was someone who argued it should have been the DNOs that missing out on just one score, around cost rolled this out. Street by street would have been the most efficiency. Johnson admits to being "very disappointed": efficient way to do it. But that wasn't the route Decc went "We were very close, and the more we look at it, the down, and now the suppliers have very firm plans in closer it seems." ENW will resubmit its plans in March, place to start the rollout. We aren't prepared to do that, with a focus on explaining cost efficiency around asset and if we were asked to, it would take time to prepare." management. Johnson says there will not be wholesale The smart meter rollout is just one of the risks netchange of the business plan, adding: "It was a well justiworks face. The biggest, thinks Johnson, arises from the fied business plan when we submitted it. We really did eight-year RIIO timeframe. Asked what could go wrong, push the boundaries in terms of the price reductions we he replies that ENW has assumed relatively low growth were giving customers." in the low-carbon economy. It is working from Decc's There's another sticking point in the numbers, this most conservative estimates on, for example, take-up of time over cost of equity. Ofgem is consulting on changelectric vehicles and distributed technologies. If there is ing the way it calculates this, to bring it in line with the a greater take-up, perhaps encouraged by government Competition Commission. Industry sources have told intervention, ENW could have to meet the cost of upgradUtility Week this could cost the networks £60 million a ing its network accordingly. "That's part of what we deal year, although Johnson says he does not recognise that with as a business," says Johnson. figure. ENW, like the other networks, has submitted its Do the low assumptions around low-carbon measures response to Ofgem, although they are all understandably mean that Decc is at risk of not meeting its binding Eurocoy about publicly arguing against a change that could pean targets on cutting carbon emissions? Johnson says see a reduction in consumer bills. that all Decc scenarios, including the one ENW is workENW bid a higher number on cost of equity than the ing from, would meet the targets – though concedes this other networks, at 6.8 per cent. Johnson defends this, could mean the UK "buying carbon credits which add up pointing to the length of the new regulatory process and to the right sum". the degree of uncertainty investors face over that period. It is uncertainty, if anything, that keeps Johnson "Ofgem needs to look at the particular circumstances of awake at night. "You've got Labour talking about the this industry," he says. "Looking that far out brings its abolition of Ofgem and different structures within the own risks to our business. Look at what ENW has done market. All of that may or may not affect the networks and the risks it has assumed rather than putting on to businesses. What we need is stability, political and regucustomers. We've assumed that the low-carbon investlatory, because come what may, we have a lot of money ment is going to be low and we'll take the risk on that, to invest in these networks." we've put in place many efficiencies within the plan that Still more risks sit outside the political and investwe have to deliver, and that's our risk." ment framework. The entire utilities industry faces a Johnson won't be drawn on what the change would massive skills shortage. ENW recently opened a skills mean, saying diplomatically: "We look at the entire busiacademy, and has a number of outreach programmes to ness in the round. Regardless of where that debate comes local schools, encouraging youngsters to take an interest out we will sit down with Ofgem and look at the total packin careers based around science, maths and technology, age, and we've got to be comfortable that it delivers for but Johnson admits it remains a struggle. customers in the northwest and all of our stakeholders." ENW's recruitment of post A-level school leavers Does Johnson think that the political row over the cost is close to Johnson's heart, as he himself entered the of energy has caused Ofgem to come down harder on the industry at 18, as a trainee with Yorkshire Electricity. He networks? "No," he says, not missing a beat. "They have worked his way through the ranks, and is no stranger to always, in every price review, been rigorous on cost and storm callouts. After a spell at Norweb, Johnson worked on efficiency. There's no ramping up to be done because for a number of years at United Utilities, which saw him the politicians are interested; it's their day job." running its water business in Wales and its contractor He does concede, however, that the cost of living business, before being MD of Morrison when it was part debate has changed the public attitude to energy compaof Anglian Water Group. This cross-utility experience is nies of all types. This hasn't necessarily affected how cusrelatively unusual and must come in handy. Are there tomers view the business, but certainly has changed the comparisons to be drawn between water and networks? media and political approach: "There is a sensitivity about "They're very different," says Johnson. "When the water the entire industry, and like it or not, because it's quite businesses were privatised, their price review process complex, people don't always see the difference between was RPI+k. It was the time when the European legislaus and the big six." Johnson would like to change that: tion came in about clean beaches, there was vast invest"I would be very happy for us to have a separate item on ment so their revenues were growing. At the same time, every bill," he says. "We are the fourth emergency service, electricity distribution businesses were on RPI-x, with and I want people to know who we are and what we do." massive efficiency challenges. I think the water busiNetwork interactions with customers may indeed nesses are now going through that journey as well." increase over the next few years – but not necessarily It's a strong story, and one that Johnson will no doubt for the right reasons. Like all networks, ENW has had to have put to the select committee this week with his usual factor increased callouts arising from the smart meter pleasant charm and cool efficiency. Just as long as they rollout into its business plan. Johnson says it is too early don't call him one of the big six. to say how many of these there could be, although other 10 | 24th - 30th January 2014 | UTILITY WEEK