Utility Week

14 | 23RD - 29TH MARCH 2018 | UTILITY WEEK Policy & Regulation Analysis A s utilities grapple with the transfor- mational change sweeping the sector, company chief executives face chal- lenges on many fronts. To try to better under- stand how utility chief executives perceive these challenges, Utility Week has launched a new regular research series: CEO Insight – the first of which is summarised here. The biannual research canvasses the views of leaders in major UK utility compa- nies across the water and energy sectors, seeking to understand their thoughts on the political and economic climate their organi- sations are operating in, the regulatory and policy landscape surrounding them, and what the future holds in terms of change and challenge. In addition, the survey also seeks focused feedback from chief executives regarding specific and current issues impacting their utility sector – for example, the design and implementation of new regulatory frame- works such as AMP7 and RIIO2. The results from the first iteration of CEO Insight paint a picture of chief executives poised for sector disruption. Top management expects radical changes to business models, even in the short term; they are dissatisfied with, or are lukewarm to, the regulatory regimes they operate under and express concern in relation to wider eco- nomic and political factors impacting their businesses. This article contains a summary of the core findings from our first round of research. While responses to some questions show significant variation in opinion between dif- ferent utilities sectors, qualitative commen- tary on the survey findings – available in the full report available to Utility Week members at utilityweek.co.uk – show the findings gen- erally resonate with chief executives across the board. Even in areas where a single subsector stands out from the crowd – for example, with regards to networks' generally posi- tive outlook on their regulatory regime – qualified comment shows that there are significant and growing concerns about the direction of travel for the future. In particu- lar, there was wide-ranging concern about the susceptibility of regulators to political influence. A detailed analysis of Utility Week's first CEO Insight findings is available in the full report. For ease of consumption, the findings have been split into four main chapters for focused consideration. These are: • CEO Insight: the macro-environment; • CEO Insight: utilities regulation – includ- ing detailed appraisal of network views on the future of RIIO; • CEO Insight: business model transforma- tion – including appraisal of workforce challenges and consumer perceptions of the industry; • CEO Insight: access to finance and inves- tor confidence. While this broad-ranging report is available exclusively to Utility Week members, a spe- CEO Insight: reality check Utility Week has embarked on a twice-yearly project to go out and take the temperature of top management's views on their industry. This is a taster from that first premium report. cial subsector report on findings relating to the water industry has been made available online for all Utility Week readers. The creation of the water report reflects the especially robust views of water whole- sale and retail companies in response to the survey questions. When aggregated for anal- ysis, these findings show: 1. Water wholesale and retail leaders have lower than average confidence in the UK government and economy to provide a stable environment for their business when compared to other utilities. 2. Wholesaler chief executives were unani- mous in saying customer perceptions of the utilities sector are on the decline. 3. Wholesaler confidence in their access to debt and equity was lower than that of other regulated utilities. Wholesalers rated ease of access to debt at 7 out of 10 International politics, excluding Brexit Brexit Macroeconomic factors Regulatory change/uncertainty Policy change/uncertainty New technology and commercial models Changing habits of consumption and demand Climate change and the increased incidence of extreme weather TO WHAT EXTENT ARE EACH OF THE FACTORS ABOVE AFFECTING YOUR BUSINESS? INDICATE THE IMPACT ON A SCALE FROM 1 TO 10 3.4 4.5 5.1 6.0 7.9 7.5 7.2 6.1 ■ Strongly disagree ■ Somewhat disagree ■ Neither agree nor disagree ■ Somewhat agree ■ Strongly agree NETWORK DOUBTS ABOUT LOWER RETURNS: INVESTORS WILL BE WILLING TO ACCEPT A LOWER RATE OF RETURN UNDER THE PRICE SETTLEMENT 33.3% 50.0% 16.7%

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