One thing keeping utility chief financial officers up at night is trying to juggle the multitude of challenges being thrown at them. That was the verdict of the senior financial executives who were invited by Utility Week and Oracle to meet in London at the end of last month to discuss the lot of the chief financial officer.
“The pressure on us is coming from different angles,” said one roundtable attendee. Climate change, and the consequential change in weather patterns, is altering the way both energy and water companies are operating. At the same time, they’re grappling with issues such as huge regulatory change, increasing customer expectations and negative public perception. And then there’s Brexit – which is making everyone nervous.
Ticking the boxes of the risk register
Brexit has certainly proved a distraction. But it hasn’t featured in any big way for regulated utility companies up to this point. Although it is an issue that is “moving up the risk register” for companies of all stripes as the leave date approaches.
Regulatory change is a much bigger factor in companies’ current decision-making.
For water companies, PR19 has become increasingly demanding, and things look set to follow the same path for the energy networks as the road to RIIO2 begins. “It’s all about PR19 at the moment,” said one representative from the water sector. “Even with things like customer service.” This increased focus on “the customer” at PR19 means the importance of branding has risen up the agenda.
Previously, companies didn’t want customers to know they existed. Now, as the issue of social responsibility is becoming increasingly important, they’re finding they must build a brand people trust and prove the legitimacy they have as service organisations. In this area, it was agreed, utilities still need to do a lot more to shout about how they contribute to society. And not only that, they need others to talk about what they’re doing that’s good as well.
This is a big ask for “old, archaic” utility companies. But if they get it right, they should be able to counter the negative perception that has surrounded them recently, which has led to threats of renationalisation. Where does this public outcry come from? There was a general feeling in the room that it was fed by issues around executive pay and company finances. This is an area where utility companies need to stay calm and be transparent about what they’re doing. For example, some water companies are in the process of winding down their Cayman Island subsidiaries to appease the public.
Another bugbear for roundtable participants was the negative effect that regulatory changes would probably have on investor confidence. Representatives from energy network companies were particularly vocal in this area. It was suggested that the widely reported proposed sale of Electricity North West will be an interesting testbed for whether investors are still interested in UK utility companies.
There was a general observation that if investors find the network operator attractive despite the impending reduced returns being imposed in RIIO2, it will strengthen government and Ofgem’s hand in pushing ahead with its strategy – particularly if it’s an existing investor in the market.
A recent Utility Week report, written in association with Oracle (see box, right) found that CFOs feel they have developed a greater understanding of the operational side of their business, and the larger issues impacting the sector as a whole. But despite the challenges ahead, there is a sense of optimism and an appetite for not just retaining value – but adding the highest possible value to their companies.
One thing is sure, these are tough times for utility companies, and finance chiefs are faced with numerous challenges.
Jenny Harrison, finance director, UK Power Networks
“The impact of the political and social position we now find ourselves in means utilities have even more to do to explain and demonstrate the contribution we make to society.”
Abby Farrell, wholesale finance director, Southern Water
“The CFO now seems to own the data integrity and the data strategy. Historically that wasn’t the case, and that’s a big challenge – the vast quantity of data.”