Peter Emery is the new guy in the electricity distribution chief executive gang. He joined Electricity North West (ENW) in May after a turbulent winter for the distribution network operator (DNO) and just before the Brexit vote seized the UK business landscape and shook it like a snow globe.
Installing himself between these two sources of worry, Emery has been careful to take time to bed in, to get to know the business, its people and the industry – which are all new to him.
That said, Emery isn’t the sort to conform to the status quo for long without questioning its rationale. When Utility Week meets him at ENW’s central Manchester office he admits, with a smile, that “I’ve never worked in anything like it [regulated utilities]” and it’s not long before he’s revealed some developing views about areas of opportunity – internally and externally – where a fresh approach could bring benefits.
Perhaps foremost among these are his thoughts about the challenge that is on everyone’s lips in the energy sector today – innovation.
As the UK seeks to decarbonise its energy system and embrace a wave of decentralised, smart technologies, electricity networks have come under pressure. Despite challenges to the design of a system that was not built with decentralisation in mind, networks have been pushed to teach old assets new tricks, bring in fresh gadgets and create novel ways of influencing demand – or be blamed for holding up the march of green progress.
ENW is no exception and, among DNOs and the technology supply chain, it has a quiet reputation for being one of the most receptive organisations to innovative ideas. Emery duly notes the great work his employees have done to wring value from innovation schemes funded under the Network Innovation Allowance and the Network Innovation Competition, provided by the regulator to incentivise DNO transformation – a move that Emery also commends.
These schemes have allowed ENW to develop exciting approaches to active network management, to prototype frequency control for local balancing and to experiment with new demand-side contracts to enable energy storage connections – for which there is growing demand in its license area.
Emery celebrates all this, but then lets his commercial mind, forged with organisations such as Exxon Mobil and Drax, shine through. “One of the challenges for me, and I’m sure it will be a question our shareholders ask us often, is: how can we bank the cheque for this [innovation work] for Electricity North West?”
Is Emery suggesting DNOs should be able to enjoy unregulated returns on their applications of innovation?
“I think it is something that we need to explore,” he confirms, calmly. “The more successful you are… you want to do more of it. But I am not running a charity.”
It’s an interesting thought, though one that many traditionalists in the world of regulated utilities and public service delivery might find uncomfortably radical. Wouldn’t it mean that companies ought to be obliged to put more of their own money behind innovation, rather than relying on regulated, consumer bill-funded pots?
“That’s quite possible,” says Emery, unfazed. “We are starting to have these conversations internally about what is the best way to fund these things. I think the government funding is working well. I think it is moving the industry forward quickly and we are very keen participants in that. But there might be other ways to bring more funding to bear and to increase the pace of innovation.”
Does Emery think other DNO executives would support this direction of travel? Emery shrugs the question off. “I’m still the new boy on the block. But with my background [in competitive sectors] you’d expect me to be asking those questions I would think.”
Funding structures aside, picking up the pace of energy system innovation is certainly something that many would welcome. But with so many interdependent facets of system transformation to dabble in, it would be easy for an uncoordinated increase in pace to add little to overall progress.
For Emery, the key area of focus that should ensure accelerated innovation also has pertinent direction, is around “the envelope for the distribution system operator”. This reinvention of distribution networks as local system operators with balancing powers and other National Grid-type roles in their regional license area is a key pivot for debate in the power industry today and something that Emery is discreetly excited about.
“If you believe in a decentralised approach – which is becoming conventional wisdom – then you need to be able to manage networks locally,” he says, in a matter of fact fashion.
The government’s call for evidence in its consultation on smart energy systems is overdue. It will canvass industry opinion on what the DSO’s role should look like – among a range of other issues including removing barriers to the deployment of energy storage and enabling demand-side markets.
Our conversation having turned toward government, Utility Week issues the now obligatory questions about the perceived impact of Brexit and early impressions of the new government – especially our new Department for Business Energy and Industrial Strategy.
On the former, Emery is relatively sanguine. He admits the Leave vote was not something which had been expected or thoroughly prepared for at ENW, but after an initial moment of shock, the company quickly mustered resources to inspect the fallout.
Emery emphasises that this was not about formulating knee-jerk reactions to “ultra-short term” consequences of the vote. Rather, minds went to work on the plotting the potential long-term effects in three main areas: national and regional economic dynamism and the effect of a slowdown on ENW’s connections business; inflation, which is “a big driver” for DNOs; and exchange rates.
Overall though, Emery says “we don’t see Brexit as a threat to our business” – something that has been communicated to the workforce and investors with equal care.
Of marginally more concern is the departmental re-organisation, specifically the demise of Decc. Emery is cautiously optimistic that the creation of the new Department for Business, Energy and Industrial Strategy will play out as a true merger of Decc and the Department for Business, Innovation and Skills, not a “takeover” – but he does worry that “any change is a platform to shift position” and this would be an unwelcome knock to confidence in policy direction.
Reverting from national and macroeconomic chat to the nitty-gritty of internal business, Utility Week asks Emery what he’s keen to change or develop in ENW, now that his feet are comfortably under the top desk.
Emery says he’s hardly a veteran yet, and that it’s still “early to judge” both the business and the industry. He’s also quick to list the many ways in which ENW is already performing well, he returns to innovation, adding that ENW is one of the highest-ranking DNOs for reliability. It’s also the operator that has delivered the biggest price reductions against Ofgem’s expectations in the current regulatory period. It outstripped its commitment to deliver an 18 per cent reduction in year one of RIIO-ED1 for example, delivering 21 per cent. Across the price control as a whole, it expects to reduce costs by 15 per cent.
With these successes recognised however, Emery comes on to the room for improvement. Primarily, this is in the area of customer service and satisfaction.
Despite ENW’s reliability, it has struggled to score highly against Ofgem’s Broad Measure of Customer Satisfaction for DNOs. Emery explains: “If there is a fault or an interaction, the measure assesses how well you interact with the customer. This DNO… it’s a weakness. We need to interact with the customer more effectively. Ironically, because we are one of the most reliable DNOS, we get fewer breakdowns and fewer fault interactions with customers. But that is not a measure of our customer service in as far as it’s measured by the regulator.”
Working on this performance area will not be a chore. Emery says staff are “relishing” a broader trend towards increased interaction between DNOs and end users. “We need to improve that interface, not just to supply electricity but to deliver innovation into the future,” he says.
Unsurprisingly, the other thing at the top of Emery’s to-do list for ENW is preparation for the coming winter. Storms Desmond and Eva, which hit the UK in December 2015, did not treat ENW kindly. Tens of thousands of homes lost power during Storm Desmond alone and power restoration was complicated by flooding and the loss of communications.
ENW’s response to the crisis was widely praised at the time. The network went above and beyond to care for customers, handing out 25,000 hot meals and working around the clock to get supplies back on line.
Emery says staff are “rightly” proud of their work last winter, but “there are quite a lot of issues that come out of it”. There is data to be studied on areas of particular vulnerability and associated strategic asset protection. But equally areas bordering those vulnerable regions need resilience studies – storms don’t hit in the same way every time.
Emery is confident this work will be effective, but at the same time, is quick to criticise the historical approach to setting resilience investment allowances.
“One of the challenges we have in this regulated sector is that we have to convince the government of the merit of our investment cases and obviously the government will look to other sources to verify our claims,” he observes. High on the list of these independent experts is the Environment Agency, which provides flood risk forecasts. Emery says last winter clearly demonstrated that the approach taken to compiling these risk assessments over the past ten years has been “inadequate”.
“That’s not good news for us because we are having to revisit capital investment schemes that were put in place to address these issue. It’s not good for our customers either because everybody thought that we were on top of this and it looks like we’re not.”
It’s a gloomy thought for a new boy with, perhaps, the clouds of his first big challenge in the job gathering on the horizon. But Emery says he’s enjoying getting to know a very different part of the energy “value chain” than the ones he encountered in his previous roles. And it’s clearly true – perhaps not least because he’s finding there is a good deal he can challenge.