Demand for ‘explicit’ skills focus in utilities price controls

Resilience and sustainability duties must push firms on workforce and talent planning, insists skills body chief

Ofwat and Ofgem should explicitly require companies to demonstrate they have a “resilient, skilled and sustainable” workforce in their business plans for upcoming price controls, the boss of Energy and Utility (E&U) Skills Group has said.

In the run-up to PR19 and RIIO 2, Nick Ellins told Utility Week that the regulators must spell out the need for strategic workforce and talent planning in the sector, embracing it as a core part of their statutory duties on resilience and sustainability.

Water and energy network companies can “talk about their resilient infrastructure, but unless you have the people to make it resilient, it’s a bit of an arbitrary point,” said Ellins.

He added: “Ofwat and Ofgem have statutory duties on resilience and sustainability. There needs to be an explicit understanding as to how those regulators are meeting that duty.”

Ellins suggested a new definitiion of resilience which asks firms to show they are tackling workforce challenges as a priority, would deliver this clarity. He said that “Ofwat will not prescribe to companies what that should look like,” but could encourage firms to take a collaborative approach to building skills resilience. “It needs to be a shared sector responsibility,” he added.

Eearlier this year, E&U Skills launched the first whole utilities sector strategy on skills and workforce renewal. The document urged rapid collaborative action across the sector to mitigate the risks posed by worrying talent and labour shortages.

It warned that national ambitions for improvements in productivity, and investment in infrastructure will not be met unless the skills needs of the utilities sector are addressed.

E&U Skills estimates that utilities companies will collectively need to recruit 221,000 new employees over the coming decade in order to replace retiring staff and account for natural job churn. Further recruitment demand is likely to be added as new infrastructure projects come on line.

Meeting this demand will be complicated by the fact that UK employment levels are at a record high, warned Ellins. “So employers have a choice between trying to steal staff from elsewhere – creating competition which forces the cost of labour up – or going to that pool of unemployed candidates. But data shows us that less than 1 per cent of people on job seekers allowance are skilled.”

The sector skills strategy spearheaded by E&U Skills had the backing of a wide range of senior industry figures including Ofwat’s chief executive Cathryn Ross.

Commenting on the launch of the launch of the strategy, she said: “A workforce with the right skills is vital for a resilient water sector. The challenges we now face mean that the sector must pay even more attention to the long-term skills it will need and the ways in which they will differ from the needs of the past.”

Ofwat is due to host a meeting with water industry chief executives on 14 September to discuss the meaning of “resilience in the round” in PR19 and how it will impact company plans for AMP7.

The regulator told Utility Week that this meeting will include a “strong” focus on skills. A spokesperson added that skills issues also feature “heavily” in the PR19 draft framework, particularly in relation to “operational resilience”. It is essential water companies have “the right people with the right skillsets” to operate future infrastructure and deliver customer service imporvements, they said.

As well as calling for a new definition of resilience, prioirtising skills issues, to be developed for the next utilities price controls, Ellins urged government to take “stewardship” of skills strategy in the utilities sector.

In particular, Ellins said Treasury should provide an “intellectual overview” which looks at expectations for national productivity and industrial growth as well as infrastructure investment and asks “does this all fit” with what is known about labour demographics.

“Treasury owns the national productivity agenda and the National Infrastructure Plan,” said Ellins. “It also ultimately owns the Industrial Strategy – which it commissioned out to BEIS [the department for business, energy and industrial strategy]. So there is a natural reason for Treasury to take on a kind of stewardship of the sector.”

Ellins also urged the department for environment and rural affairs to include skills and workforce issues in its future strategic direction statements, saying that the water sector “takes its lead” from this. 

Nick Ellins will speak at Utility Week‘s HR Forum in September about the need for workforce challenges to be put at the core of price control planning. See more about this event here.

Read Nick Ellin’s column “Why we need a sector skills strategy”.