Utility Week

8 | 2ND - 8TH MARCH 2018 | UTILITY WEEK Interview from the wider economic conditions, rather than from performance on the ground. In the face of this criticism, Ofgem has been encouraging networks to hand back so-called "excess profits", and four of them so far have heeded that call by collectively volunteering to return £650 million to customers. More significantly still, the regulator has raised the prospect of opening up the current regulatory settlement for DNOs, ED1, at its four-year halfway point, in the mid- period review (MPR). In a consultation released late last year, the regulator set out several options for the MPR, including option three, which would involve reopening "financial and incentive performance and design". Symons doesn't mince his words: "Our investors are in the US, and their regard for UK regulation was exceptionally high up until the MPR consultation. They regarded the UK jurisdiction as one of the best in the world, mainly because it gave investors stability over a period of time. As soon as an agreement looks as though it's going to be turned on its head, which option three of the MPR really states, that creates great uncertainty for them. If I take my own company, at least 20 per cent has been knocked off the stock price because of that uncertainty." Symons argues that this uncertainty will hit customers in the pocket by increasing the cost of capital: "Discus- sions or debates that have been held about excess profits, which in themselves are a fallacy, and adjustments that could be made during an MPR melt into insignificance when you compare that to the effects of uncertainty – which are higher equity and financing costs in the future, resulting in higher costs for customers." As the MPR plays out, the detailed planning for the next round of RIIO is already under way. There are major questions about the structure of RIIO2 that Ofgem, under the leadership of senior partner for networks Jonathan Brearley, is currently consulting on. Among them are the questions of whether it should be a five or eight-year price control – "eight years – if you do the deal and stick by it" – and whether innovation funding should con- tinue – "absolutely". There's also the question of whether Ofgem will offer a fast-track option, as it did first time round, when Symon's WPD was the only business to achieve that coveted status. Symons hopes so – and would be deter- mined to achieve it again. "Basically, my aim has always been not to be second at anything, always to be in the lead – and the more distance you can put between your- self and whoever is coming second, the better." He stands by this view despite the fact that fast- tracking has, by one measure, cost the company: "If you look at the way debt is assessed in our cost of capital, compared to slow track companies, that's cost us about £137 million. I have been encouraged to go back in an MPR and say this is significantly material and I have resisted that because I believe that the integrity of the regulatory system is far more important." There's a mes- sage there for Ofgem. Of course, it's not just electricity that sits within the ENA's purview, and both Symons and Smith are keen to emphasise the work the ENA is doing on the future of gas – including the forthcoming gas networks inno- vation strategy, which will co-ordinate the networks' approaches to innovation and applications for funding. Both are enthusiastic about the potential of innovation within the gas networks, where the experimental use of hydrogen is one of the few areas of the industry currently garnering positive publicity. "Lots of people are looking at these new technolo- gies, and in the past, they would have thought, 'these companies aren't going to do that'," says Smith. "But we are – and being joined-up in everything we do, tak- ing a whole-system approach, is at the centre of what we're doing." Overseeing the energy system transition is Ofgem – the regulator, which has seen a series of personnel changes at senior level. Chairman David Gray, an expert in network regulation, stands down at the end of Sep- tember. He has been followed out the door by Rachel Fletcher, who has moved to Ofwat as chief executive, Andrew Wright, and others. Symons acknowledges: "There's a lot of change in regulation and change some- times works for the good and other times there's a drain of expertise. So I can see a lot of expertise going out. The important thing is that good people get attracted into it and I suppose the difficulty with a regulator that's cur- rently under fire politically is attracting the right calibre of people into the jobs." For the ENA itself, though, the road is clear. Smith acknowledges the benefit of having Symons in the chair, as someone who "has the back story of this, the big- gest uncertainty in a generation". He adds: "We've been below the parapet. That parapet has been shot away and now we have to show what we're doing with clear con- cise messages, showing just how innovative networks are, and what good value for money they are." Asked what he hopes to achieve in his tenure at the helm of the ENA, Symons concludes: "Success in two years' time is if, against the odds, we get our message across and can turn the tide of this negative view of net- works. On the physical side, I would like to see networks enabling the low-carbon future. I believe we are the key to making it all happen." And there's nothing boring about that. David Smith, chief executive, ENA

• Cover