Utility Week

UTILITY WEEK | 23RD - 29TH MARCH 2018 | 15 Policy & Regulation Key findings Utility Week's first CEO Insight research, conducted by Utility Week's independent market research partner Insight Advan- tage, shows: 1. Policy and regulatory instability are the highest rated fac- tors impacting businesses today, receiving scores of 7.9 and 7.5 out of 10 for impact respectively. The third-highest rated impact factor was change and uncertainty relating to new technologies and commercial models (7.2). 2. Brexit is currently relatively low on chief executives' agen- das, with respondents scoring its impact at just 4.5 out of a possible 10. However, this varies considerably by sector, with vertically integrated energy companies scoring it much higher than average (7 out of 10) and water retailers much lower (1.5 out of 10). 3. More than half (57 per cent) of chief executives believe the regulatory regime under which they currently operate is not fit for purpose, with water retailers and challenger energy supply brands most likely to take this view, and power and gas net- works least likely to. Even with water retailers and challenger suppliers taken out of the equation, however, nearly half of chief executives say their current regulatory regime is not fit for purpose. 4. Even in the next five years, chief executives expect con- siderable change in their business models, with respondents rating the expected scale of change at 6.7 out of 10 in the next five years. This rises to 8.7 out of 10 in the next 10 years, and a transformational 9.3 out of 10 in the next 15 years. 5. Respondents expressed a strong appetite for M&A, with 81 per cent of CEOs saying their organisation would be a "buyer" in an M&A scenario. At the same time though, there was little expectation of significant M&A activity in the next 12 months, with 67 per cent of CEOs saying they expect "very little" M&A and a further 19 per cent expecting "moderate" levels of M&A. and ease of access to equity at 5.6 out of 10. This compares with ratings of 9 and 7.3 out of 10 for power networks. 4. Wholesalers are lagging behind their peers in gas and power networks in terms of realising the benefits of a move to totex accounting. 5. Satisfaction with the current regulatory regime is low across the water sector, especially among water retailers where all chief executive respondents said the cur- rent regime is not fit for purpose. 6. Wholesaler sentiment around the frame- work for PR19 is lukewarm, with sig- nificant dissatisfaction expressed with regards to the approach to setting the cost of capital and the introduction of new performance targets. Utility Week is now embarking on the second round of its CEO Insight research, reaching out to an expanded pool of industry leaders. While maintaining core questions on macro and cross-sector issues such as confidence in the business environment and customer per- ceptions, the second iteration of the research will also pose refreshed question sets for utilities subsectors, reflecting key develop- ments for each. The second CEO Insight report will be published in June. The full report is available to download at: utilityweek.net/CEOinsight 10% CEO views on customer perceptions of utilities: Do you believe that customer perceptions of utilities are changing? 62% 29% ■ Yes, they are improving ■ Yes, they are becoming more negative ■ No, they are static CEO SATISFACTION WITH THE PR19 FRAMEWORK: WHAT IS YOUR LEVEL OF SATISFACTION WITH THE FOLLOWING ELEMENTS OF THE METHODOLOGY FOR PR19? ■ Very low ■ Low ■ Adequate ■ High ■ Very high The approach to calculating cost of capital The fourfold classification of business plans The new measure for customer service The immediate introduction of new targets, for example on leakage The focus on resilience The new measure for developer service 14% 20% 57% 29% 14% 14% 43% 29% 14% 29% 29% 29% 14% 57% 43% 14% 29% 14% 45% 29% 14% 14% NETWORK SUPPORT FOR RIIO: RIIO HAS POSITIVELY CHANGED THE WAY WE DO BUSINESS ■ Strongly disagree ■ Somewhat disagree ■ Neither agree nor disagree ■ Somewhat agree ■ Strongly agree 16.7% 16.7% 66.7% Methodology We approached 48 chief executives of leading companies across the UK utilities sector, including water wholesalers and retailers, gas and power distribution networks; the big six vertically integrated energy companies and a range of challenger energy brands. More than half – 21 – responded. Their input was anonymised and aggregated in line with market research guidelines and Utility Week will not be providing details of which companies have responded to the survey, in order to protect the anonymity of chief executive responses. To add meaning to the survey responses, Utility Week also sought out qualitative comment from a range of chief executives and other expert commentators on the sector. This input has helped to shape and inform this report's analysis of the research findings. This report is the first in a new series of CEO Insight research from Utility Week. The research will be conducted biannually with the next iteration to appear in summer 2018.

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