David Porter has been chief executive of the Association of Electricity Producers (AEP) since 1991, and he has never shied away from telling the organisation’s members painful truths when the need arises – or of correcting the industry’s critics when they are being unfair. When I meet him he is honest about the gloomy state of the industry’s affairs – but he does see better days ahead.
“At the moment, the sector’s reputation is dreadful,” he says. ”It’s a sad state of affairs for an industry that is delivering a very reliable product. I am a fan of almost everything that’s happened since privatisation, but the old, cumbersome gold-plated industry had more respect than it has today. Good things we have done have passed the customer by.
“Often our poor reputation is undeserved, and I have no problem saying that to journalists – I once told John Humphrys he was talking nonsense. People take for granted that electricity always works and that they are always connected, but it would be useful to convey how much effort goes into that.”
Porter praises the work the sector has done in setting up cross-industry lobby group Energy UK, and the public role taken on by director Christine McGourty. He applauds it for addressing some painful issues, but says this is just the start. ”Sometimes the industry needs to say plainly when it has things wrong. There is no future being defensive about the issues. It may not lead customers to love us, but we should aim for respect.”
He says that sometimes giving an uncomfortable message is also necessary at the political level.”Because the industry is politically sensitive, it has to have the confidence of, and work closely with, government. At times we have been too reticent about pointing out where a government policy might lead. We have been close and helpful to government – but not a critical friend.”
That is one reason that Porter has been spearheading work over the past 18 months to bring the AEP together with the Energy Retail Association (ERA) and the UK Business Council for Sustainable Energy (UKBCSE). He says current trade associations have an excellent record doing day-to-day work, “but we felt we could do better by bringing them together so we could get big messages out more clearly and effectively”.
He continues: “Just as important, we need to recognise that there is far more to the industry than just the big six companies. The AEP knows that. We have an amazing range of members and we have thrived on that for a long time. The time has come for the industry’s main body to be more representative.”
Porter is excited about the change. ”It will give us a fresh start on some issues and a wide range of inputs to policy,” he says. ”It will be a chance for the industry to up its game on reputation and effectiveness.”
Porter admits that AEP members were not convinced at first because they were afraid of contamination from retail issues. ”They had a point,” he concedes. ”But in the retail sector, problematic issues are often prices, and then we are all in the frame, from the smallest windfarm owner, to National Grid, to the long-suffering person in a call centre. We can’t duck our responsibility.”
The AEP’s members saw that it might be useful to have a broader range of views, but they were concerned about the prospect of being swamped by the big six. Consequently, the new organisation will have a sixteen-member board and an independent chair. ”The maths says that can’t be dominated by one group,” Porter explains.
That has satisfied the small generators who already work within the AEP, but small companies in the supply sector do not have that experience and Porter admits it is a harder sell to get them in. He says: “We want the small suppliers in the organisation and we have tried hard to engage with them. I think they will be there. The full range of interests should be represented and if we can’t make it attractive to small suppliers, I will be deeply disappointed. But we may have to think imaginatively about how small suppliers can be engaged.”
That raises the question of whether network companies, whose interests are represented by the Energy Networks Association, should have joined the new group.
Porter says: “I was disappointed that they did not want to contemplate a merger. I respect their decision and that they made it clear so early – at least 15 months ago. But they have had a seat at the table and it’s only now as we move towards a shadow board that they will step aside.
“They have a different culture, but they want to be plugged in and we will work with them enthusiastically. We will need to be in tune with them on big issues. Some companies – like National Grid – will belong to both. If the organisation is really successful, they may want to join in the future.”
To make the change, the AEP will take over the assets of the ERA and the UKBCSE. A name for the new organisation is being mulled over – it may be Energy UK – and a proposal will be put out to the combined membership in the first quarter of this year.
It’s a “friendly takeover” and the aim is to have a legal entity in place by the end of February. There will be divisions for generation and retail within the organisation, and Porter stresses that “the sectors will find the day-to-day work carries on”. Public affairs, communications and management will be centralised. Porter says there are “really talented people in all three organisations and it will be good to see them rubbing off each other”.
Porter will initially head the organisation, but he points out that he is close to retirement. ”I will play a part in getting the new organisation off the ground and finding a new chief executive, but we need to bring in some fresh thinking. I am open-minded about where from – possibly from another sector – but no-one should underestimate the size of the task or how exciting it is.”
The group will also need a chairman, “one who will understand the importance of finding common positions on high-level issues.” I ask if he might take that role. He says: “Retirement doesn’t mean stopping work completely. I would like to find a role on a company’s board whose work appeals.” Further comments about “new blood” seem to rule out the chairman’s job – but Porter doesn’t quite manage to dismiss it completely.
His key message is that for the energy industry a good reputation is not optional: “It is vital that the industry raises its standing in the eyes of customers, because it is always at risk of political intervention. A better reputation lowers that risk.”
Clarity and stability in energy policy are always the industry’s key aims, but is it ever possible to achieve that? Porter says: “We have to keep trying, but it would be naïve to expect it will be available some day soon.
“Investment ambitions are daunting and there is a big question over whether it can be delivered in full. Despite this, the industry is delivering change. It’s not as fast as some people want, but it has a proud record of delivery.”
Grand designs
Talking about the measures now under way to decarbonise the power industry, David Porter says: “When we have grand ideas we have to be conscious of the fact that every idea has to be paid for. We have legally binding carbon reduction targets and legally binding renewable energy targets – put that together and it’s an enormous challenge. We might be able to meet renewable energy targets – but late – without massive change, but we aren’t going to achieve the decarbonisation of the power industry without new mechanisms. We have to do something, but the concern is how much we are doing in a short time. The renewable energy target for 2020 is forcing the pace. It’s too much, in too short a time.
“With feed-in tariffs, we have had five renewable energy mechanisms in two decades. That’s not the way to provide a framework. I am acutely aware of the need for investors to have confidence in the support measures for the long term.”
Porter says a close eye also has to be kept on developments in Europe. He gives an example: “The Energy Efficiency Directive is well intended, but they had some proposals that were nonsense. At times we see proposals come forward that are detached from the real world of engineering and finance.”
The AEP has posted a detailed statement on Electricity Market Reform. It can be found at: http://bit.ly/AaI7Ym
The good, the bad and the forgettable
David Porter has seen energy ministers and energy regulators come and go. I ask him how he assesses those figures.
On energy ministers, he says: “There have been far too many. Some were forgettable, some were clearly just passing through, and one or two have appeared twice.
“Preparedness to learn is good. The present minister has an excellent grasp of his brief, but that doesn’t make the issues any less challenging. Of the three main strands of energy policy , all energy ministers are acutely aware of which bring the most grief electorally.”
As for regulators, he says the key to the best is that: “You can predict their decisions. I have seen the regulator move from straightforward economic regulation into something that begins to take on the challenge of reconciling policy conflicts. Personally, I don’t feel comfortable with that. Those conflicts should be managed by those who cause them – politicians.
“It would be easier if the regulator was simply economic: neutral on policy and able to say from a disinterested position that the outcome for customers or investors from this policy is likely to be this.”
Asked if the water industry model, with an economic, environmental and safety regulator, is a better model, he says: “It might be easier.”
This article first appeared in Utility Week’s print edition of 13 January 2012.
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