Since joining the company as chief executive in 2011, Basil Scarsella has guided the UK Power Networks (UKPN) through some major changes, for both for itself and industry as a whole.
The year before he assumed the CEO’s chair, the company, which was previously known as EDF Energy Networks, was bought by a consortium led by Hong-Kong-based Cheung Kong Infrastructure, and Ofgem announced plans to replace the old price control model (DPCR) with the new RIIO framework.
His initial tasks therefore included not only establishing a new identity for the company – the largest distribution network operator in Great Britain – but also setting its direction for the first set of RIIO price controls beginning in 2015 for electricity distribution.
The framework gave network companies a pre-agreed budget for delivering their business plans and encouraged them to improve efficiency by allowing them to keep a share of any underspends.
It also provided additional incentives for delivering a series of consumer and environment-focused outputs and replaced the Low Carbon Networks Fund introduced as part of the previous price controls with the Network Innovation Allowance and the Network Innovation Competition.
UKPN appears to have done well for itself under RIIO. According to Ofgem’s latest annual report, the company is on track to underspend its £6.8 billion budget by £906 million – or more than 15 per cent. No other DNO comes close. The average underspend for the rest of the electricity distribution sector is just 1.7 per cent.
At the same time, the report shows the company meeting nearly all its output targets. The only exceptions are the safety and connection targets for its license areas in London and East Anglia respectively.
Factoring in the rewards and penalties for meeting or missing these targets, UKPN is expected to achieve a total regulatory return on equity of 11.63 per cent – nearly double the sector’s baseline of 6 per cent and significantly higher than the sector average of 9.15 per cent.
Whether this is reflection of the company’s actual performance or its success in securing a generous initial settlement remains a matter for debate. Either way, investors should be pleased.
Of course, Scarsella’s legacy at UKPN will not only be measured in the pounds and pence it has saved for investors and consumers, but also the tonnes of carbon dioxide it has helped prevent from entering the atmosphere.
As part of the ongoing transformation of the energy system, DNOs will need to move from a passive ‘fit and forget’ approach to actively managing their networks as the electricity system operator already does at a national level. Critics have accused the sector of being slow to turn the ship around, with DNOs failing to roll out the many innovations they have trialled as business as usual.
UKPN does appear to be towards the head of the pack in terms of shifting towards this new model. The company has been one of the most frequent winners in the Network Innovation Competition, most recently being awarded £16.4 million for its Optimise Prime project to explore the potential impact of commercial electric vehicle charging on distribution networks.
Working with National Grid, UKPN rolled out an active network management system across the South East of England in 2017, allowing the firm to offer flexible connections on a routine basis.
Earlier this year, the company became the first DNO to hold a commercial flexibility auction on the Piclo platform, and in October a trial was launched which will allow residents of a block of flats in Brixton to sell flexibility services to UKPN through the ongoing tenders.
With the issue of climate change rocketing up the public agenda, his successor will be responsible for taking this work to the next level, whilst also facing off the threat of renationalisation under a Labour government. And they will need to do all this as they prepare for the most stringent price controls for networks since privatisation.