Getting to grips with the new reality

At last year’s Labour party conference, Ed Miliband fired the starting gun for the 2015 election, putting the affordability of energy front and centre of national debate. It was a game changer for utilities – networks and water companies as well as energy suppliers.

The suppliers saw the most obvious and immediate results, with their vilification in the national press reaching unprecedented proportions. An undignified scramble for the political high ground followed, as the government botched together a £50 cut in household energy bills, paid for by watering down energy efficiency and social obligations, or “green crap” as they became known. The inevitable upshot was the announcement this summer of a full inquiry into the sector by the Competition and Markets Authority – a move welcomed by the sector as a chance to finally end the game of claim and counterclaim with some cold, hard facts. Indeed, Ofgem chair David Gray admits on page 13 this week that it should have ordered the intervention earlier – though he defends the regulator from charges of having inadvertently created many of the market’s failures.

All this is against the backdrop of investors seriously spooked by the prospect of a price freeze, with billions wiped off the share prices of the UK-domiciled members of the big six, Centrica and SSE, alone.

For energy networks, the effects have been more insidious. While they are outside the remit of the CMA inquiry (despite the best efforts of some of the suppliers), their costs are now under more public scrutiny that ever before, with a select committee inquiry underway. Moreover, the public makes little distinction between energy suppliers and networks, and its antipathy for the former surely spilled over into its angry reaction to the handling of the Christmas storms. Networks, once the backroom boy of the energy sector, are having to adapt quickly to the spotlight and learn new ways and means of communication.

The effect on water companies has been more subtle. Where Ofgem can be said to have failed, Ofwat succeeded in reading the political and public mood and started the crackdown on costs before being forced to do so. The water companies have largely understood the need for this approach, and nearly all voluntarily passed up their full allowed price increases this year. Labour this week ­signalled an intention to go further, with mandatory social tariffs!

Miliband’s moment marked a sea change in how utilities relate to politicians, the public and the media. One year on, as Labour moves its focus to energy efficiency and low-carbon generation, the sector is beginning to get to grips with the new reality.