Download Price controls in the energy networks and water

Price controls in the
energy networks and
water industries
Price controls in the energy
networks and water industries
The introduction of PR14 and RIIO means that regulated energy network and water companies are
facing a period of substantial change. Decarbonisation, customer demand and climate change place
pressure on them to maintain the resilience of their assets. And public affordability concerns, falling
return on capital and regulatory reform are creating a need for innovative thinking to sustain levels
of service to customers in a cost-effective way.
T
he
pressures facing
utilities companies are
coming from all sides.
Through the determination process
and into the next regulatory period,
companies will need to develop their
capabilities in a number of areas:
managing risk and uncertainty
delivering value under totex, and
performing in a new incentive
environment.
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M
anaging
risk & uncertainty
Negotiating the regulatory settlement
requires a robust and flexible approach.
Our experience shows that wellprepared companies are able to provide
immediate guidance to their Boards on
determinations and their impact on the
company and its customers.
We can help companies to prepare
for the settlement process, aiming to
maximise the likelihood that they are
fast-tracked or that their business
Price controls in the energy networks and water industries
plan receives enhanced treatment.
We can also help companies to prepare
alternate scenarios – these can ensure
that their business plans stands up to
varying degrees of challenge.
Our understanding of the potential
variations in sector and companyspecific factors enables us to assess
our clients’ ability to maintain service
levels to their customers and to
manage choices in finalising their
regulatory settlements.
D
elivering
value under totex
The experience of leading energy
network companies indicates that
investment in information, innovative
ways of working and the harmonisation
of operating models, performance
measures and incentives will support
success under totex.
Our work with investment strategy
and asset management teams has
emphasised how a trend toward lower
whole-life cost operating solutions
will require a cultural shift, including
the review of maintenance policies
and operational risk management
processes.
We have supported our clients
in adapting to totex, including
re-alignment of operating models
and the development of innovation
roadmaps setting out their ambitions
for new thinking. Our work has
supported the design of whole-life value
decision processes, and the definition of
requirements for asset performance and
cost information across operating as well
as capital delivery activities, helping to
establish the link between interventions
and risk mitigation. Our consultants help
not only to define the requirements, but
also to embed the significant cultural
change that can be required.
P
erforming
in a new
incentive environment
The potential for outperforming the
regulatory settlement is uppermost on
companies’ agendas. Affordability and
financeability pressures are creating
an increasing emphasis on integrated
efficiency programmes to reduce
costs. Our expertise in designing
efficiency programmes and delivering
early benefit through targeted tactical
changes has enabled energy networks
and water companies to drive
outperformance through successive
price control periods.
The interaction between new and
established incentives will be a key
feature of the next regulatory period.
In addition to cost sharing incentives
under totex, rewards and penalties
associated with delivery of high-level
outcomes or outputs will be governed
by the impact on levels of service to
customers.
Our experience in developing
customer engagement programmes
and implementing improvements
in customer experience is allowing
us to help companies review their
hierarchies of performance measures
and the reporting framework required
to underpin them.
How we’ve helped
We worked collaboratively with a major water utility over a number of years to build their
capability for future investment planning and price review programmes.
Our advice and support to the client over this period has included:
development of a medium term planning capability, integrated with long term strategy
mobilisation of their price review programme, recruiting an in-house delivery team
forecasting long-term future scenarios to support financial planning and customer engagement
designing their retail business models and leading delivery of their retail business plan
development of their roadmap for innovation
supporting their response to licence modifications consultations
a review of their approach to risk and uncertainty management in investment planning.
Price controls in the energy networks and water industries
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For more information please contact:
[email protected]
+44 (0)203 327 4220
About Baringa Partners
Baringa Partners LLP is an award-winning management consultancy that specialises in the
energy, financial services and utilities markets in the UK and continental Europe. It partners
with organisations when they are developing and delivering key elements of their business strategy,
as well as working extensively with government and regulators to provide policy and advisory services.
Baringa works with its clients either to implement new or optimise existing business capabilities
that relate to their people, processes and technology.
Baringa is recognised both in the UK and internationally for its unique culture, which has been acknowledged
by a number of awards and accolades and continues to reaffirm Baringa’s status as a leading people-centred
organisation.
Energy and water policy and regulation
The energy and water sectors are governed by a complex policy and regulatory environment.
In recent years, the UK Government and industry regulators have had to address a number of significant
challenges, while maintaining an overall balance between the sometimes conflicting requirements to:
maintain security of supply
facilitate environmental sustainability, and
ensure affordability of bills for consumers.
Policymakers have developed a range of industry reforms, from reviewing how the competitive retail
market is working for energy consumers and introducing retail competition in water for the first
time, to reforming the investment incentives in the electricity market to promote decarbonisation.
Companies need a robust strategy to navigate the policy and regulation lifecycle so that they
can move from the influencing and business impact assessments stage through to
implementing business change.
We work with a variety of clients throughout the policy and regulatory lifecycle,
including Government, regulators, regulated and non-regulated companies, investors,
energy consumers and new market entrants. Our work in this area ranges from
advising on the development of policy and regulation to assessing the impact
of upcoming regulation on market participants, and to implementing business
model changes and process transformation in energy and water companies
as a result of new policy and regulation.
Baringa Partners LLP, 3rd Floor, Dominican Court, 17 Hatfields, London SE1 8DJ
T +44 (0)203 327 4220 F +44 (0)203 327 4221 E [email protected] W www.baringa.com
© Copyright Baringa Partners LLP 2013. All rights reserved. This document is subject to contract and contains confidential and proprietary information.