Party conference season 2015 was historic. Not only was it the first on the back of a Conservative general election victory since 1992, but it was the debut of Jeremy Corbyn as Labour leader, and a chance for the Scottish National Party to celebrate its new position of influence.
A key part of it was energy policy, which was significant in the run-up to May’s vote and played a role in Corbyn’s ascent to party leader. Energy policy also remains a core area where the SNP wants more powers devolved to Holyrood.
The Conservatives, free of the restraint of the Liberal Democrats, have started to implement their will on energy policy. Feed-in tariff pre-accreditation has gone and the Renewables Obligation support for onshore wind is going the same way. Further subsidy cuts for solar have also been announced.
In Manchester, energy secretary Amber Rudd insisted the Tories are still pressing ahead with the transition to a low-carbon economy – the recent Hinkley Point C deal a prime example – but she insisted that this cannot be done at any cost. “There is no magic money tree,” she said.
Conservative-flavour environmental responsibility began to manifest itself in water policy with water minister Rory Stewart embarking on a year-long project to pull together a 25-year plan that will feed into, and help shape, abstraction reform towards the end of the parliament.
At conference, the Tories were triumphant about the election victory but eager to show the country that they were “getting on with the job”. Meanwhile, down in Brighton, there was a very different atmosphere.
In his leadership campaign, Jeremy Corbyn publicly expressed his “personal wish” to see the energy companies, including National Grid, return to public hands. However, this notion was promptly dismissed by his new shadow energy secretary, Lisa Nandy, who unveiled “more radical” plans for the democratisation of energy.
This boils down to supporting and encouraging community ownership of generation assets – such as solar farms – as well as collective switching schemes and new, independent energy suppliers, such as Nottingham City Council’s not-for-profit Robin Hood Energy.
The newly appointed shadow energy minister Alan Whitehead also took the opportunity to attack the “quite random and bizarre announcements” from the Conservative government, while new shadow environment secretary Kerry McCarthy accused the Tories of “chipping away” at environmental legislation.
Despite the posturing and attacks, however, navel-gazing was mostly the order of the day, and more substantial policies will emerge only once Labour establishes where it wants to be.
For the SNP, its conference in Aberdeen was both a celebration and a rallying call. Party members rejoiced at the near-clean sweep of Scotland in the election while remembering to position themselves for the Scottish parliament elections next year.
One of the key things MPs and MSPs called for was a greater devolution of powers – particularly around planning consents for underground coal gasification. The SNP would like to see this put alongside fracking on the moratorium (if not banned) list.
Other greater autonomy would allow the Scottish government to stop onshore oil and gas developments, continue to promote production from there North Sea, and continue the country’s push towards 100 per cent renewable electricity generation.
In short, six months on the from general election, party political power plays are well underway, and energy policy is a point-scorer for all while water largely remains on the sidelines.
Utilities’ policy positioning paper
This year Utility Week Lobby took the voice of the UK utilities industry into the thick of the major party conferences by hosting three fringe events at the Labour, Conservative and SNP party conferences.
Ahead of the conferences, Utility Week, in association with Bain & Company, held a series of high level workshops with company chief executives and senior directors in the energy and retail, energy transmission and distribution, and water sectors.
These discussions were used to develop a policy positioning paper identifying approaches that would help utilities address their major challenges over the coming parliament.
Energy
• Government should clarify its position on the energy trilemma of security, affordability and environmental protection, and on Electricity Market Reform (EMR).
• The withdrawal of exemptions to the Climate Change Levy with 24 days’ notice was a setback for investor. Government should clarify its intention never to implement retrospective policy changes.
• Industry welcomes the findings of the Competition and Markets Authority (CMA). It asks that the appropriate measure of profitability for the industry be used, and that the proposed backstop tariff be avoided, or limited to vulnerable customers, to prevent unintended consequences
• To deliver the best customer experience at the lowest possible cost and with the least possible disruption, industry needs the full five years initially planned for the smart meter rollout.
• The future of gas in the medium-term energy mix should be explicitly acknowledged, and policy support given with this in mind.
• Industry recommends that government review how new connection costs are charged.
• The industry asks for greater alignment in government support for apprenticeships and the promotion of vocational skills.
Water
• Industry suggests that extending the current five-year regulatory cycle to eight years could deliver greater consistency and investor confidence. Other options include introducing longer-term incentives that run between price reviews.
• Government should support Ofwat in providing a transparent assurance framework for the opening of the non-domestic water market in April 2017, and take a timely decision as to whether opening on this date is the best option for customers.
• Non-household competition is a major reform. The benefits and costs should be assessed post-implementation before further market reform (such as upstream reform) is undertaken.
To download Utilities 2015: A Policy Positioning Paper in full, go to the downloads section.
Labour engagement
Trust and confidence and utility companies: they may not seen the most natural of bedfellows at the moment, but the panel at Utility Week’s fringe event at the Labour party conference in Brighton agreed that the sector’s reputation could be rebuilt (or in some cases retained). The bad news is that it will take time and a lot of effort to get to that customer satisfaction nirvana.
The key issue, flagged by shadow energy minister Alan Whitehead, is affordability. “Customers want to feel as though they are not being ripped off,” he said. The challenge facing the energy suppliers – and the other utilities – is ensuring customers feel as though they are getting value for money from their energy and water supplies.
Citizens advice director of energy Audrey Gallacher reiterated the “value for money issue” as a major barrier to trust and confidence, but also slammed utility companies’ complaints handling process and a lack of engagement with customers.
However, Southern Water chief executive Matthew Wright and UK Power Networks chief executive Basil Scarsella defended their industries for maintaining higher levels of trust and confidence than the energy supply sector.
Scarsella stated that distribution network operators had a nearly 90 per cent satisfaction rating because of the reliable service they provide, while Wright praised the regulator for pushing the water sector towards focusing on customer needs – thus boosting their legitimacy.
One key element that is a constant thread across all the sectors, and was highlighted by energy ombudsman Lewis Shand Smith, who was in the audience, is customer engagement – and in particular for energy, the roll out of smart meters.
He said the rollout had the potential to raise a whole series of billing issues, and represents a “massive risk” to the industry.
Whitehead wrapped up by saying the rollout had to be carefully managed, and customer expectations kept realistic, otherwise it risked being a real-life version of Spike Milligan’s Snibbo, a spoof product that over the course of the famous 1960s comedy TV series Beachcomber, promised to do all manner of unlikely and unrelated things.
Tory light touch
The Utility Week and Energy Networks Association political roadshow rolled up to Manchester town hall for the second in its series of fringe events examining trust and confidence.
This session, with a knowledgeable audience of party members, largely focused on the role that regulation has to play in helping utilities rebuild and maintain the faith of their customers and legitimacy.
Minister for constitutional reform John Penrose, the author of the 2013 We Deserve Better report that examined the role of economic regulators, was on the panel and criticised the way the industry had developed only slowly since privatisation. He said it had come to rely on a “tick-box exercise” to keep companies in shape deliver for customers.
“We’re stuck in a post-privatisation world where the regulator is trying to do our job for us, but consumers should be able to do it themselves with ease.”
Energy ombudsman Lewis Shand Smith agreed with Penrose, highlighting Ofgem’s standard condition 25C, which states that the energy companies must treat customers fairly. “Can you imagine any other industry that the regulator tells companies to treat their customers fairly?” he told delegates.
The solution, he said, was a “culture change”, which could be achieved through lighter touch regulation rather than the more prescriptive regime that Penrose outlined.
United Utilities commercial director Jose Davila also signed up to this school of thought, and highlighted the work that is underway, not only in his company, but also in the water sector.
“Regulation won’t ever go away,” he said, but added that the important thing was to engage with the customers on the decisions that will impact them, and to deliver service of a level that would be expected in a competitive market.
Electricity North West chief executive Steve Johnson admitted that the energy sector did not have the trust and confidence of its customers, but he said the distribution network companies needed to differentiate themselves form the suppliers, and highlight their reliability. This, he said, reassures customers and helps contribute to the nearly 90 per cent satisfaction rating achieved by the networks. But he added that the sector’s culture needed to be similar to a competitive market, not only maintaining service standards but also ensuring innovation took place.
SNP: help for prepay
The final stop on the party conference tour saw Utility Week arrive in Aberdeen for the SNP conference to a room packed with party members.
The focus, somewhat aptly on a chilly day, was on the issue of how energy companies can, and should, help those in fuel poverty, including prepayment meter customers.
A question from the audience asked how the smart meter rollout, with its focus on prepayment, should be made to benefit vulnerable consumers, and energy ombudsman Lewis Shand Smith said the energy sector should use the tools at its disposal to improve the service for vulnerable customers.
He added that the UK should look to replicate a European model where, if a prepayment customer self-disconnects, a message is sent form the meter to the supplier, who notifies social services, who in turn is able to check on the customer. “This is not proposed in the UK at the moment but enormous potential to do something like this exists in the UK,” he said.
ENA director of policy Tony Glover added that smart meters would provide distribution companies with visibility of their network, allowing them to see if and when a customer has been disconnected, or self-disconnected. They could then cross-reference this with a priority customer register and ensure the “necessary action” was taken to.
SNP MP Phil Boswell went further and said that with the smart meter rollout, vulnerable customers – who make up a large percentage of those with prepayment meters – should be able to benefit from improved tariffs rather than paying more, as they currently do. “The prepayment tariffs for low earners has to be looked at because that on its own is enough to push people over the edge,” he said.
Consumer Futures Scotland manager Sarah Beattie-Smith, sitting in on the session, questioned whether different types of ownership structures would help to restore trust and confidence in the energy sector.
Shand Smith said there were “huge and exciting possibilities” for new ownership structures, such as Nottingham City Council’s Robin Hood Energy, and he said the growth in independent suppliers “shows customers are willing to trust new, smaller suppliers”.
Boswell echoed this point, and said there was a range of structures that could be developed, such as community suppliers, council-run organisations, or even “hybrid” companies.
Talking points: Tony Glover, ENA
This year’s party conferences came after some of the most unexpected democratic outcomes for many years. The election of a majority Conservative government, the collapse of the Liberal Democrat vote, the rise of the SNP in Scotland, and the election of the new Labour leader Jeremy Corbyn. Few predicted such circumstances going into the conference season.
It has also marked a continuation of the much-overused description of “interesting times” for energy, something which Utility Week’s policy positioning paper (see p12)has captured very well. This is especially the case for our members in the electricity and gas networks.
Throughout our Utility Week Lobby party conference fringe events the theme of trust and confidence often began squarely with the customer, as it should, but also moved across the sector to take in the impact of subsidies for renewables, the challenges of connecting distributed generation and the roll out of smart meters. We explored the very real risk of damage that all of these policies could have on consumers’ trust and confidence in our industry.
The need for a joined-up approach to all of this was also highlighted through the government’s decision to create the National Infrastructure Commission and the appointment of Lord Adonis – both positive contributions to the ongoing approach to realising the vital role of our infrastructure and its impact on the public, our customers.
Utility Week’s positioning paper recognises the important challenges our sector faces through new technology, the demands on our existing infrastructure, what that means for our workforce and why long-term certainty is important for investment and future-proofing our assets.
These alone are policy impacts that we must seek to inform and deal with. They do not, however, sit in isolation, and the true impact we need to consider is that of the customer, the value for money they get and the service they receive.
We were delighted to hear from energy ombudsmen Lewis Shand Smith that the networks have taken the principle-based regulation around customer service to their heart and transformed their businesses.
Basil Scarsella, our chairman and the chief executive of UK Power Networks, spoke about the near 90 per cent satisfaction customers have with their network company and Steve Johnson, chief executive of Electricity North West, said that his company treats its customers as if they were competing for their business every day. The success of the networks, Shand-Smith said, would put him out of a job if it was replicated across the industry. It is an approach to customer service that our members are proud to be driving.
ENA director of policy Tony Glover
To download a pdf of full article as if appeared in Utility Week, click here