Cadent ‘throwing the kitchen sink’ at performance problems

In the first part of our interview with Cadent’s new chief executive Steve Fraser, Utility Week discusses his strategy for improving the performance of the gas distribution network and transforming it from a sector laggard to a leader.

My immediate impression of Steve Fraser, the new chief executive of Cadent, is that he somehow doesn’t come across like one. As I’m led into a meeting at the company’s headquarters in Coventry, I momentarily mistake him for another member of the press team before glancing around to see there is no one is else in the room.

This impression is clearly deliberate.

Once we’ve shaken hands and taken our seats, I ask whether Fraser whether he’s enjoying the new role. For the first few months, he admits, not really: “I think it was a cultural thing… The company was very formal.”

He describes it as being “like a morgue”. When he stopped to chat with the receptionists and staff in the canteen: “People would look at me like: ‘What’s he doing talking to them?’”

Fraser says creating an open and equal workplace where no one is considered lesser is both good for business and a matter of decency. “I believe you should treat the cleaners with the same respect at the chairman, and anyone I catch here not doing that won’t be here for too long. It’s humane and it’s the culture I want.

“We’re all in this together and no matter how much somebody’s paid or what job they do, everybody comes here to try and make this company better every day, and we have to work together to do that. And a good company with a good culture – it’s about being much greater than the sum of its individual parts.”

Since the start of the new year, Fraser says people have been “starting to have a bit more fun and enjoy themselves”. They have relaxed and he has too.

“This opportunity, when I got the phone call, it was perfect really for me,” he recalls.

His previous role was as chief operating officer for United Utilities – a firm he joined more than a decade ago. He says the management team at the water company had turned around its performance in the preceding years: “Obviously as chief operating officer that’s a big tick in the box personally for anybody doing an operational role.”

But having worked at the firm for the best part of the decade on both its regulated and non-regulated activities, “I wasn’t getting out of the bed with the same sort of zest and drive,” he remarks.

With Cadent lagging behind the other gas distribution networks as United Utilities once trailed its peers, Fraser said the chance to deliver another turnaround excited him: “If the company was number one in everything, I don’t think it would be as appealing for me.

“The company itself is going through a huge opportunity with the new brand, a huge opportunity with the new regulatory settlement coming up, to really reset the bar in terms of operational performance and the way we are seen by our customers.”

He also believes he is the right fit for Cadent: “I think companies, at a certain time in the cycle need a marketeer or a politician, and at other times in their lifecycle they need an operator to run them. And Cadent at the moment very much needs an operator.”

Fraser says the overall aims of a gas company are broadly very similar to those of a water company: “To look at it from a sector level, it’s about doing a good job, keeping customers’ bills as low as you can, helping vulnerable customers and taking our responsibility to the environment seriously, which is what we’re trying to do by driving hydrogen forward.”

But he says the way they are incentivised to achieve them are quite different: “Water is very much about an end-of-the-pipe type of regulation… It’s about the quality of the product, either at the tap or the end of a pipe going into a river.

“What I’ve found quite interesting in gas is its very much an all-encompassing form of regulation that’s looking at a number of detailed operational parameters.

“Ofwat, for many of the right reasons in the water sector, has moved away from that to an extent. Operational performance was still important, but it wasn’t governed by 70 or 80 different operational parameters.”

“I, as an operator, actually enjoy that,” says Fraser. He likes having targets to aim for: “You know what you’ve got to do and you either do it or you don’t.”

Possibly as a result of this approach to regulation, Fraser says the gap between best and worst performing companies is “much tighter” in the gas sector than in the water sector: “Nobody’s good at everything in gas. Whereas in water it tends to be that the good companies are generally good at a lot of things.

“At the end of the day there’s an inherent safety issue, isn’t there, so we have to work in a very much more uniform way in the sector. We’ve all got one hour to respond to a leak – that kind of thing.”

The front may be closer, but Cadent is still at the rear. In 2017/18, the company was the only gas distribution network that failed to deliver its annual outputs, missing three targets for customer satisfaction and reliability across two of its license areas.

Fraser is blunt about Cadent’s past performance: “The problem with this company is there’s been too many times in the past where they’ve either not done the things they’ve said they should or met the targets they’ve been set and agreed with the regulator.

“That’s why we are at the bottom of the pile. We won’t be there for too long.”

He says they are “throwing the kitchen sink” at the problem: “On Christmas Day, we had 71 teams working in London alone just to make sure we hit our targets…

“At the end of the day, there’s no point in hiding from the fact that we have operational challenges. We need to overcome those.”

He continues: “That said, there’s also some things we’re good at and one of the advantages we’ve got is, if you look at our four networks, we’re very good at some things in every network. But we don’t put it together in one place and that’s the challenge the network directors have to face.”

According to Fraser, one of the reasons they find themselves in this position is that when the company split from National Grid the IT systems were a “shambles”. Even now he says they are still in the “dark ages”.

He should be able to tell exactly where his workers and what they are doing. Right now, he admits: “We don’t.”

“If you’ve got a slick system that allows you to live auto-schedule a team based on their current geography, that’s a lot better than a team that comes to the office in the morning and is given the work for the day. To get that place can be painful and can take a long time.”

He says the IT department is working hard to bring them up to speed but it will be a slow process and “frankly they are only now being supported with the right investment”.

They are not trying to create an “all-encompassing” IT system that can do all things at once. So long as there is good system for storing and sharing data, then individual apps can be used to complete a number of specific tasks. They will be in a “much better place” in 18 months.

In its recent report, the RIIO2 Challenge Group noted that Cadent’s costs are some of the highest among the gas distribution networks. Fraser does not dispute this: “The way we buy some of our products, which adds to the cost base, is ridiculous for company like this.”

One issue, he complains, is that: “There’s been too much focus in this company in the point cost of something – so the cost at the point of delivery – and there’s been not enough focus on the costs of the company overall.”

He gives their call centres as an example: “It always intrigues me why people pay people in call centres the least in the business, because actually they’re some of the most important people.”

“If you phone up for a connection it touches eight people prior to a shovel going into the ground to do the work,” Fraser explains. “We are a simple company. We’re not putting satellites in space. So why do eight people talk to you?

“Why don’t we put a few more people in the call centre and they manage seven or eight customers at the same time, and they manage it from cradle to grave? The customer get confidence from being under one person. We don’t lose the paperwork or the quote or whatever.”

Call centre staff need to be able to have “deep, intelligent” customers, who should feel like they are dealing with a much smaller business. “I don’t think any company’s truly nailed it,” he adds.

Fraser says they are now “nipping away” at their cost base and should be in the middle of the pack by the end of the current regulatory period: “Now, we don’t want to be in the pack. We want to be number one because we’ve got economies of scale.

“But Rome wasn’t built in a day.”

Note: This interview was conducted prior to the coronavirus outbreak in the UK. The second part will be published shortly and will cover hydrogen networks and regulatory returns.