Utility Week

UTILITY Week 22nd May 2015

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

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UTILITY WEEK | 22ND - 28TH MAY 2015 | 7 Interview I n the midst of a Competition and Markets Authority (CMA) investigation into the RIIO price controls and SSE's purported anti-competitive behaviour, Utility Week meets Bill McClymont. As chief executive of Energetics Networked Energy, a relatively small but ambitious independent distribution network operator (IDNO), the so spoken Scot unsur- prisingly has views on this climate of condemnation. Question marks over the extent to which regula- tion has encouraged competition for gas and electric connections set IDNOs up as the struggling underdogs in the market. But McClymont's not looking for sympa- thy. His outlook is bright, considerably brighter than the gloomy London day outside the office we've borrowed for our meeting. "Since the last price review there have certainly been improvements in the amount of competition, par- ticularly in electricity," says McClymont. Looking back over Ofgem competition reports in years gone by, he explains that competition for electricity connections ini- tially struggled compared with gas, where 50 per cent of new connections were being won by IDNOs as early as 2007. "At the same time it was only about 8 to 12 per cent in electricity." Since then, Ofgem has introduced new competition tests and in the past couple of years McClymont wel- comes "quite a marked improvement", with the number of electricity connections won by independents now more or less on par with gas. This improvement has, in part, been the result of RIIO, a new price control mechanism, bringing different drivers and requirements for the regulated distribution networks. But it's also thanks to a gradual soening of an instinctively hostile DNO response to the introduction of competition back in 2005, says McClymont. Then, the chief executive remembers conversations with DNOs could be "a wee bit abrasive". Today, rela- tionships are better and conversations, particularly at management level, are less defensive. McClymont attributes this to a realisation – which has taken a while to trickle down from business plans to the coal face – that in a world where massive investment is needed in energy infrastructure and pres- sure is mounting to accelerate the emergence of smart grids, making new connections is "no longer core to a DNO's business". Indeed, far from feeling threatened by the loss of new connections business to independents, McClymont thinks some managers welcome the opportunity to pass on a "troublesome" task that requires them to "deal with the customer directly". But although market conditions have improved, McClymont is clear that there's more to be done before competition can be considered robust. There's no ideal ratio of connections that should be won by IDNOs rather than retained by incumbents, he says, but "because we are regulated differently, I believe we are more commercially fleet of foot in making new connections". "And I would take the view that certainly the vast majority of new connections should be made by inde- pendents, leaving the monopoly companies – still with a proportion of that revenue because we are still connected into their network – to concentrate on what is required to create a smarter energy system. "I would argue that it is to their advantage for that to happen," McClymont comments. But the fact that Ofgem has reported a possible breach of competition law by SSE to the CMA suggests that, by accident or design, some DNOs are struggling to come to the same conclusion. Offering his perspective on this development, McCly- mont says: "There doesn't seem to be a huge amount of detail available on the challenge to SSE. But it's interest- ing that it has not been charged with breach of licence, it has been charged under the Competition Act. "Normally, where we have challenges – and we have had challenges with electricity networks over the years – it has been in the form of a licence breach. They are under licence under the Electricity Act to behave in a cer- tain way and when they don't, we can challenge them. "But now we have a similar situation with a DNO – not SSE I stress – where we believe they are not breaching their licence, but they are breaching the Competition Act." In this case, the conflict has arisen over acquisition of land rights. The legal detail around these rights means

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