Within minutes of the start of Utility Week’s New Deal Debate, you felt that if anyone could come up with the answers, this panel could.
Drawn from every corner of the utilities sector, including energy retail and generation, water regulation, networks, and social inclusion – and featuring the architect of the Climate Change Committee’s net zero report – this was one big line-up.
Nevertheless, it was a panel facing huge questions on how utilities can reverse the legitimacy issues that plague them, while ensuring their business models, technology and service offerings rapidly scale up to meet their climate change obligations.
Few punches were pulled in a straight-talking debate about what has always been a fragmented sector, and one now undergoing fundamental change.
Yet by close of play there was consensus emerging too, around the need to put customers far more at the heart of future business and policy planning, technological innovation and efficiency and usage solutions if we are to incentivise them and see industry deliver the nation’s decarbonisation target on time, or sooner.
Call to action
Jonson Cox, chair of Ofwat, made no apology for pushing hard to “encourage – and where need be to compel – the water industry to reinvent itself”.
“I have to say some in the sector lost sight of their full range of responsibilities as public service utilities,” he said.
Yet, referencing both its Back in Balance campaign, (aimed at rebalancing delivery for customers alongside delivery for investors), plus the sector’s Public Interest Commitments, (including becoming carbon neutral by 2030), showed ambition and real progress, he said, albeit it was “a bit of a shame it took the regulator to be the lead”.
Changing the constitution of companies to put customers and the environment on a level playing field with the interests of owners was another key message. “I don’t see that as a threat to ownership. Investors remain very important to utilities. I think it is actually part of securing the legitimacy of a long-term return for investors as well as customers and the public.”
Meanwhile, former cabinet minister Lord Deben was unequivocal about the folly of nationalisation of the sector: “You can’t get the state to police itself effectively. (We seem to have seen a little of that just recently.) There is an arrogance about the state which always happens, because they feel they’re doing the best for everyone and therefore they’re right.
“So… we really do have to be very concerned about the importance of regulation, about the integrity of regulation, about the value of regulation and about regulation being able to keep up with the changes that take place.”
Describing climate change as the “biggest material threat to humanity”, the environment champion’s rallying call was: “I want to say to the industry, above all… create a relationship… a trust, in order that people take you seriously. Then I want you… to make doing the right thing easy and doing the wrong thing difficult.
“And, for goodness sake, explain these things in a language that people understand. Then I think we’ll get a long way.”
The chief executive of Northern Powergrid, Phil Jones, felt it was important to strike an objective and evidence-based balance for customers, but agreed there was much to be done about how this message was communicated in future.
Jones is also chair of the Energy Networks Association and agreed that nationalisation would be “a disaster for customers”.
He also queried why regulators should feel unable to comment on the merits of the private sector model.
“This is about the regulatory system as well as private ownership. So, I do worry about Ofgem and Ofwat saying we don’t have an opinion on that. There is a good story to be told about how a regulated system of private investment works.”
An opportunity for networks
Striking a note of optimism from the networks on climate challenge, he said: “I think it is an enormous opportunity. I can’t think of a better thing to be involved in.
“If the business that you want to be in is the one that allows diversity to be traded, (which is basically what a network is for), to release the economic value of people doing the same thing but at different times, and helping them share economies of scale, it’s a fantastic time and it’s just going to get more fantastic as the supply and demand balance has to shift and become more diverse.
“Climate change is a major challenge, but the opportunity to be part of its solution is a brilliant story for networks.”
Social inclusion expert Kerry Scott of Mott MacDonald urged energy and water companies to rebuild trust by adopting a “people lens”, delivering outcomes that are more inclusive and more accessible, regardless of demographic or opportunity.
“We are seeing a convergence of important types of change: climate, legislative, political. Each of these things have put people right at the heart of the debate.
“My challenge to industry would be how we can look at this collectively, why there is a question of low public trust, what we can do together to move forward. If industry is to make real strides on climate change, it has to be in partnership with its customers.”
Michael Lewis, chief executive of Eon UK, described the significance of trust as “really, really important” to both the operation of the industry and ultimately climate change. And he warned that when you lose trust, “you end up with an energy supply market like the one we’ve got – which is on fire.
“While much attention so far has been focused on the challenge upstream, such as offshore wind, the problem now is down at the supply end, with customers.
“The challenge downstream is actually much more difficult than decarbonising generation. How do you decarbonise transport, and the gas used in heating? We know the various technical solutions. The challenge is how we make it happen. How do we finance it? How do we provide incentives for customers to make their homes energy efficient?
“It should be a national infrastructure priority – but we have to figure out how we incentivise local authorities, private landlords, owner occupiers to make that investment.”
Redressing the balance
Kerry Scott, , Social inclusion expert, Mott MacDonald
“The New Deal for Utilities Debate brought into focus a fundamental need: for both parties involved in striking the deal – companies and their customers – to benefit from it.
“Of course, privately-owned utilities must earn a profit. And they undoubtedly do run complex systems with diverse stakeholders.
“But there is a privilege and responsibility that comes with supplying essential services to the UK population. Utility services are not in the true sense ‘public goods’ but they are treated as such. The behaviours of companies that provide them need to accord with that idea, and customers expect this. At the same time, customers need help to understand that the companies’ purpose encompasses more than, purely, the provision of service. To be sustainable, they must provide a fair return on investment to shareholders, for a start.”
Jonson Cox, chair of Owat
Lord Deben, chair, the Committee on Climate Change
Phil Jones, chief executive, Northern Powergrid; chair, Energy Networks Association
Kerry Scott, global practice leader for social inclusion, Mott MacDonald
Michael Lewis, chief executive, Eon UK
The debate focused on two critical questions for energy and water companies today.
• Trust, fairness and legitimacy:
Do utilities now have the perfect opportunity to rebuild trust, offer greater fairness and reverse the increasingly negative populist view of them, or can the legitimacy gap never fully be restored without a move towards public ownership?
• Climate change and technology:
As an industry that finds itself at the heart of a transforming market and operating environment, how can utilities ensure the decarbonisation journey improves their business, service and relationships with customers?
In January, with an industry at a crossroads, Utility Week launched its New Deal for Utilities campaign amid rife sector uncertainty about
• policy and regulation
• technological change
• extreme weather events
And all this, with public trust in utilities at an all-time low.
Our snap public poll found a mixed picture, many seeing utilities both as part of the problem, and the solution.
Following industry calls for an honest dialogue on the way ahead, Utility Week convened the New Deal for Utilities Debate.