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Northern Powergrid has launched the first stage in compiling its business plan for the RIIO ED2 price control. Utility Week speaks to the company’s policy and markets director, Patrick Erwin, about a tiered approach to engaging consumers, learnings from the gas and transmission networks and acting as a “force for good”.
Northern Powergrid, the distribution network operator (DNO) serving four million homes across the north east, Yorkshire and northern Lincolnshire, published its Emerging Thinking document this week.
It is the first step in building the business plan for the ED2 price controls, spanning 2023 to 2028, and presents 12 performance areas for consumers to comment on.
Next month will see a more detailed, multi-media approach launched, setting out different levels of service depending on the scale of investment versus savings on bills. Customers will be able to build their own business plan or simply focus on the areas of greatest interest to them.
Policy and markets director Patrick Erwin tells Utility Week that the online package will include a feature inspired by the 2050 Energy Calculator devised by the now-defunct Department of Energy & Climate Change.
The Emerging Thinking rundown is geared primarily at stakeholders that are already engaged, whereas the following stage will seek to cast the net wider.
Erwin accepts that amid a very uncertain future, it is asking customers to comment on a wide range of possible outcomes and complex subjects.
“We know we’re in a very different environment from ED1”, he says. “Back then, we had a pretty clear idea of what the answers would be. We went out with a fairly well-defined proposition quite early, which was largely about ‘more for less’ and keeping bills down.
“Here it is much more nuanced. This doesn’t have a single vision that we are seeking to define further. It’s more about presenting the space we have to play with. Our core proposition is that we know that distribution networks have a core role in decarbonisation but we don’t know how electrical that decarbonisation will be or how local, how flexible, how fast.”
He adds: “We have tried to make it as easy as possible. But if you simplify this too far you lose all the granularity so if you’re going to engage with this then you really do need to engage.”
The company expects a lot of the feedback from consumers to come by proxy from agencies such as Citizens Advice. Northern Powergrid is also liaising with educational groups and has a youth panel as part of the process, reflecting that “one of the big issues is inter-generational”.
Erwin is conscious that customer satisfaction and reducing costs will be a greater priority for many people than wider questions about decarbonisation.
But he stresses that networks all have a responsibility to be a “force for good”.
“It’s about a just transition, building back better but also realising that regulated utilities have a privileged place in the economy. If you own a natural monopoly you have a responsibility to leverage that position to be a force for good. That means obvious things like vulnerable customers but also looking at whether we have a bigger role to play in things like community energy. Given that we’re one of the few bodies left which is regional, do we have a co-ordination role on, climate change certainly, but perhaps in other areas? How can we use the fact that we span boundaries?”
Draft determinations
Distribution companies also have a privileged position in that they will be able to see the price control process play out for gas and transmission networks. Erwin also believes Ofgem will have learnt from the process and adapted for ED2.
However, he cautions against drawing a direct parallel with the GD2 and T2 draft determinations, which sparked significant disagreements between regulator and regulated.
“(Ofgem) were tough with gas and transmission and they won’t be any less tough with us. However, if you look at the credible pathways to decarbonisation, we all recognise that the distribution networks to a greater or lesser extent are at the heart of the system and we will need to build capacity in that system by customer flexibility, network flexibility and at a last resort, new infrastructure. The question is how local and how fast.
“That means we are different to gas. If you are a gas distributor, are you a network that is holding station, in managed retreat or still growing? We just don’t know.
“For transmission, again this question of how electrical and how local becomes important. We’re pretty sure that the most optimal way of managing an energy system is a decentralised, democratised system, which is trying to minimise net power flow and matchmake between supply and demand, with optimisation at its core.
“If you have that combined with lots of local renewables and quite a lot of storage than the relative importance of the transmission system is less in the future than it is today.
“It means that the heart of the energy system becomes regional and local rather than a national system. Both of those things are pretty big threats to transmission and gas distribution and open questions.
“That means Ofgem is going to be very careful about allowing those companies to spend too much money.”
Asked whether he thinks Ofgem should adopt a fully localised approach to investment in net zero for ED2, Erwin says: “All of the DNOs are in broadly the same place. We all recognise that our national stakeholders want a market framework they can play into which is as simple as possible but we also need to recognise that we are tying to optimise power flow, minimise losses and maximise utilities.
“You can’t do that on a national system – it has to be local.”
Phil Jones on his vision for the future
Introducing the Emerging Thinking report, Northern Powergrid chief executive, Phil Jones writes:
Although a lot is yet to be revealed, we have a clear view of the long-term destination and direction of travel. We are excited about the challenge that lies ahead for our business and the opportunity that we have to make a difference to our region in enabling the transition to a carbon-free society.
As we think about our plans, our touchstone is that we see the future as our opportunity to power our region with sustainable, long-term investments that unleash the potential of innovation, digitalisation, our people and collaboration to:
- Lead the drive towards decarbonisation
- Operate a highly reliable and resilient network
- Delight our customers with outstanding service
- Provide remarkable value for money
- Ensure world-class levels of safety and security
- Be a force for good throughout our region and beyond
Setting bold ambitions for the future is only the first step – important as it is. Being able to deliver them is even more important. Our strong performance in the current regulatory period gives us great momentum to deliver even more in the years ahead.
We made 53 stretching commitments in our 2015–23 business plan and by 2023 we expect to deliver on them in full – and more:
- The number of power cuts will be down by over a quarter and will be 30 per cent shorter
- Customer satisfaction levels will have increased to over 90 per cent
- The time it takes to get connected will be shorter by 30 per cent
And we will have done all that whilst finding cost efficiencies worth over £250 million that have enabled us to keep the average bill 5 per cent lower in this period than it was in the previous one, meeting the tough spending targets set by our regulator at the same time as delivering more than was required.”
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