Utility Week

UTILITY Week 26th June 2015

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UTILITY WEEK | 26TH JUNE - 2ND JULY 2015 | 19 Finance & Investment In the face of ever-increasing challenges for utility field forces, there are opportunities for best-in-class operators to outperform and enhance shareholder returns. Customers' expectations are higher than ever. Online sales and delivery (one-hour slots for the supermarket food drop-off seven days a week) contrasts starkly with the typical utility offering of an all-day or half-day appointment. Complete reliability of power and water networks is already expected: continual availability of telecommunications networks is rapidly becoming a core demand, increasing the pressure on owners to improve fix times and enhance network capacity. Asset infrastructure is, in parts, aging and frequent unplanned repairs become necessary, and the more recently installed infrastructure demands specific tech- nical skills to install, maintain and fix. Compounding capability issues is field force capacity. The smart meter rollout is driving a peak in demand for field installation. Similarly, many telecommunica- tions providers are driving annual increases in the volume of their network rollout. Competing for lim- ited resources and upskilling existing teams adds cost. So what are best-in-class operators doing to counter this erosion of profitability? A growing trend is the use of data analytics and insight development for planning and scheduling, which helps operators align team capability with task-scheduling. This includes evidence-led assess- ment of individual skills against quality of delivery, and quantifies how external field resources should be flexed in and out to maximise performance. Data-led field force optimisation should not be a surrogate for existing best-practice, but should sit alongside ongoing reviews of performance management, monitoring of working patterns and strategies to ensure retention of key staff. There are benchmarks for field force operations and if performance is below-par, operators should ensure there is a rapid improvement plan. This would include a clear strategy for the use of third-party field forces as a means of bridging both the capability and capacity gaps. Once an operator achieves parity with peers, continued innovation will be required to keep pace: and the role of data analytics will be critical. Martin Price, director, Baringa "Online sales and delivery contrasts starkly with the typical utility offering of an all-day or half-day appointment." Investor view Martin Price Complete reliability of power and water networks is already expected Analysis National Grid reassesses its assets Nigel Hawkins considers speculation that National Grid is planning a series of disposals to focus its business. T hings are afoot at National Grid (NG) as it seeks to focus its business and enhance its long-term growth. Furthermore, with net debt of £23.9 billion and annual investment of about £3.5 billion, it is hardly surprising that NG is casting a beady eye over its asset portfolio. Recent speculation has highlighted the possible disposal of its gas metering business, which is potentially worth about £1 billion. In 2014/15, it reported an operating profit of £160 million on meter revenues of £309 million: decent margins indeed. Logically, too, the future of its remaining four regional gas dis- tribution businesses is bound to be addressed. Aer all, top-dollar prices are being paid for long-term utility assets, especially those where the price regulation – and indeed political – risks are compar- atively low: as they are at present. Having sold four of its gas distribution businesses years ago, there are clear valuation parameters that NG will continually be assessing. Of course, all such disposals have to be framed within a defined cor- porate strategy, which has been subtly tweaked in recent months. Above all, NG's focus is on its UK electricity transmission busi- ness, which yielded an operating profit of over £1.2 billion last year. Material savings are already being delivered from its eight-year RIIO regulatory settlement and the quest for more will continue. Its focus on the UK gas market seems slightly less clear-cut, despite the heavy investment needs of its former Transco business. However, NG has emphasised that improving customer service – hardly its USP – is now the priority for its gas distribution operations. Significantly, despite some encouraging progress of late, financial returns in the US are well below those in the UK. But NG does have major investment plans for New England Power along with its other state-based US operations. More specifically, investment in electricity interconnectors holds particular attractions for NG. Recently, it announced its planned par- ticipation in the 725km Norway Interconnector project. In effect, electricity interconnectors are a part-surrogate for domestic generation investment. And, in NG's case, it is well placed to wheel power at short notice around various networks, using sur- pluses in one market to cover shortfalls elsewhere. Projected financial returns from interconnectors, despite price regulation constraints, are also very impressive – certainly compared with many pure generation projects. Interestingly, NG has indicated that between £3-4 billion has been earmarked for investment in new businesses, which could encom- pass anything from further interconnector projects to highly innova- tive electricity storage technology. Aer many years of quiet progress – and a soaring market capi- talisation – National Grid now seems keen to inject an element of non-regulated long-term growth into its operations. Its unrivalled expertise in electricity transmission seems to be the base upon which these aspirations are most likely to be fulfilled. Nigel Hawkins, director, Nigel Hawkins Associates

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