Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government
Issue link: https://fhpublishing.uberflip.com/i/742644
UTILITY WEEK | 28TH OCTOBER - 3RD NOVEMBER 2016 | 23 Customers "Principles based regulation doesn't necessarily mean less regulation. I believe its potentially more demanding as a premium is placed on making the right kind of judgements." Centrica chief executive, energy supplies and services, Mark Hodges "[Wastewater resil- ience] does feel a little bit like the ugly sister and actually we need to make sure there is just as much focus as there is on the water supply business." Defra director for floods and water directorate Sarah Hendry "With the decision to impose a temporary price cap for custom- ers with prepayment meters, we found very limited other options. Extending the price cap saw the risk to competition outweigh the benefits." CMA acting chief executive, Dr Andrea Coscelli "Two days of serious discussion about the business of being a utility" U tility Week Congress 2016 challenged the traditional mould of businesses in the sector and – in at least one instance – the expectations of companies about the shape of future regula- tion. It also raised some dark portents about the impact of Brexit on customer pockets. The need for utilities to increase customer focus and become more innovative in the delivery of services has been talked about for years. But at this year's Congress, presentations seemed to reflect some far firmer ideas around what this really means for business operations, culture, strategy and for the relationship between utili- ties and their regulators. To some extent this included predictable platitudes about "empowering" customers and employees. However, these hackneyed phrases were, this year, backed up with clear messages around how empowerment is to be achieved and what the expected outcomes of it will be. For suppliers, it is clear that one key outcome is to bury their association with the term "utility". From SSE and Centrica to Good Energy, presenters made clear statements about their intent to dis- entangle themselves from conventional ideas about energy transac- tions. Instead, they want to build affinity between their brands and exciting new technologies, experiences and community building. Marketing campaigns, peer-to-peer trading platforms and connected home offerings – all already in the market – show how companies are beginning to make this intent a reality. Regulator progress on redraing the supply licence will also play its part. Asset-owning network operators across energy and water are also transforming. In water, the opening of the non-domestic market has forced companies with aspirations in that area to hive-off and re-invent customer-facing operations. More broadly, Colin Skellet, chief executive of Wessex Water, showed how moves to deregulate operations are leading to a disaggregation of the water value chain. This will diversify the investment profile of the water sector and necessitate new investor partnerships for business segments with higher risk characteristics, he said. That conflict between the traditional low risk, steady reward pro- file of utilities and the urgent need to innovate, for customer value and low-carbon intensity, was an ongoing theme across the two days of Congress. In the energy networks arena, Ofgem has tried to solve this conundrum via the introduction of innovation funding mechanisms, which have been enthusiastically welcomed by network operators. However, a comment from Ofgem senior partner for consumers and competition Rachel Fletcher that the regulator is "pleased but not delighted" with the value created by innovation funding, suggests changes to these popular innovation incentives may be around the corner. The risk-reliability riddle is a key problem for providers of com- modities that are fundamental to the lives of individuals and the continuity of business – energy and water. It links closely with the challenge of maintaining legitimacy with consumers, which Ofwat senior director, customers and casework Richard Khaldi warned may be entering a new phase of crisis as post-referendum inflation hits home in customers' pockets (see news story, p4). View from the Chair Jane Gray with support from our sponsors