Looking to the long-term: hearing the public interest voice in - - PowerPoint PPT Presentation

Looking to the long-term: hearing the public interest voice in energy and water

@SustainFirst #PublicInterest #longterm

Welcome and opening comments Ted Cantle, Chair, Sustainability First Sharon Darcy, Director, Sustainability First

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Thanks to our New-Pin sponsors

MeeCng the challenges of technology, climate change, customer expectaCons and socio-demographic change Emma Howard Boyd Chair, The Environment Agency

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Market actors explain how they have taken long-term public interest outcomes into account in their businesses

Panel chair: Ted Cantle

Judith Ward, Sustainability First

Chris Harris, Director of RegulaCon, npower Jim Cardwell, Head of Trading & InnnovaCon, Northern Powergrid Alex Plant, RegulaCon Director, Anglian Water

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The long-term public interest in water & energy – what outcomes do we seek? Judith Ward Sustainability First

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Developing New-Pin’s public interest voice

• Defining the public interest

The public interest is the aggregate well-being of the general public - both short and long-term. It comprises the combined interests of consumers, citizens, the environment and investors- for both today and tomorrow

• Developing a public interest framework

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What long-term public interest outcomes did New-Pin seek ?

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Developing a common language was useful

• Energy and water sectors – a focus
• n outcomes which are engineering-

led / economic.

• Public interest outcomes – viewed

differently by different people. Shaped by many factors

• Common language around public

interest - helps build consensus around desired outcomes

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Key quesCons to shape thinking for ‘long-termism’

• How to ‘frame’ the issue / draw the

boundaries ? (dependencies, systemic risk)

• Delivery time-scales – what consensus ?
• Fairness : within & between generations ?

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New-Pin looked at some ‘hard’ public interest topics

• Long-run affordability – who pays for what - & when ?
• Long-run resilience – meeting 21st century expectations &

challenges

• Trust and confidence - developed a series of New-Pin

frameworks –‘Levers for change’.

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Levers for change – long-run affordability

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Levers for change – long-run resilience

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Levers for change – trust and confidence

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Decision-makers – a pracCcal focus on long-term public interest outcomes

• Know what outcomes stakeholders want
• Manage conflicting interests transparently. Clarify why agree /

disagree

• In today’s decision-making - know how public interest outcomes

and long-termism sit. And how delivered.

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Market actors explain how they have taken long-term public interest outcomes into account in their businesses Chris Harris, Director of RegulaCon, npower Long-term affordability

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Market actors explain how they have taken long-term public interest outcomes into account in their businesses Jim Cardwell, Head of Trading & InnnovaCon, Northern Powergrid Resilience and sustainability

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Market actors explain how they have taken long-term public interest outcomes into account in their businesses Alex Plant, RegulaCon Director, Anglian Water Trust and confidence

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Market actors explain how they have taken long-term public interest outcomes into account in their businesses

Panel chair: Ted Cantle

Judith Ward, Sustainability First

Chris Harris, Director of RegulaCon, npower Jim Cardwell, Head of Trading & InnnovaCon, Northern Powergrid Alex Plant, RegulaCon Director, Anglian Water

@SustainFirst #PublicInterest #longterm

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Delivering public interest outcomes through markets, regulation and interventions

Panel Chair: Maxine Frerk, Sustainability First Sharon Darcy, Sustainability First, Lawrence Slade, CEO, Energy UK Sonia Brown, Director, UK Regulatory Policy & Public Affairs, Visa Europe

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Delivering public interest outcomes through markets, regulaCon and intervenCons Sharon Darcy, Sustainability First

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Overview of tools for delivering long-term public interest

Market led approaches IntervenBons Engagement Governance

Hard tools IncenBves and compliance SoZ tools Behaviours and purpose

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Delivering public interest outcomes in the face of change

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? ??? ??

• Stay focused on public interest
• utcomes
• Enable flexibility
• Encourage innovation
• Keep delivering the basics – boring

things can be important

• Use the most appropriate mix of tools

for the job

Need a case by case approach to ge[ng right mix of tools

Contestable approaches Efficiency InnovaBon, choice Flexible & dynamic Speedy decisions Non-contestable approaches Long-term vision Market frameworks and rules InformaBon Standards & compliance

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Different outcomes need different mix of tools

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Look at full range of market-led approaches

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Specific issues for market-led approaches in energy & water

EssenCal services

InerCa Complex decision making chains Different consumer segments, different needs

MonopolisCc characterisCcs

Big price tags & long asset lives Stewardship ‘Anchors’ in the community

Complex systems

Networks Inter-dependencies Systemic risks

Ge[ng the ‘right’ regulatory rule book

• The regulator is not ‘in the room’ when

companies have to make decisions

• Less prescription, more principles
• Need to agree what ‘acceptable’ conduct

looks like

• Need to build understanding of basic ‘rules of

the kitchen’ with big fines for getting these wrong

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The role for government & regulators in terms of innovaCon

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• Removing barriers
• Historical custom and practice?
• Genuine protections for consumers, citizens and the environment?
• Incentives and funding
• Innovators need to make a profit! How to share risks and rewards
• Align with desired public interest outcomes – innovation not end in itself
• Look beyond technology to also include consumer facing, commercial and

institutional innovation

Signalling prioriCes for innovaCon in the public interest

C C C C

Co-ordinated – across government, with regulators and partners

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Collaborative – clear when co-operation is and isn’t permitted Clear – gives investors a firmer footing for their plans Culturally supportive – gives companies time & space to test ideas, which may not always work

C

Consistent – more predictable, setting out how will adapt to change

Levers for change – decision making framework for considering market-led approaches in energy and water

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Levers for change – principles for government & regulators when considering transformaCve innovaCon

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Lawrence Slade, CEO, Energy UK Delivering public interest outcomes through market-led approaches in energy

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Sonia Brown, Director, UK Regulatory Policy & Public Affairs, Visa Europe Delivering public interest outcomes through regulaCon and intervenCons in water

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Delivering public interest outcomes through markets, regulation and interventions

Panel Chair: Maxine Frerk, Sustainability First Sharon Darcy, Sustainability First, Lawrence Slade, CEO, Energy UK Sonia Brown, Director, UK Regulatory Policy & Public Affairs, Visa Europe

@SustainFirst #PublicInterest #longterm

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Networking lunch 13:15 – 14:15 The Bishop Partridge Hall

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Delivering public interest outcomes through engagement and governance Panel Chair: Ted Cantle, Sustainability First Chair

Sharon Darcy, Sustainability First Zoe McLeod, Chair, South East Water Customer Challenge Group John Roberts, Chair, Electricity North West

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Ensuring the public interest voice is heard Delivering public interest outcomes through engagement and governance Sharon Darcy, Sustainability First

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Engagement – why engagement is important in energy & water

Affordability Resilience The demand side LegiBmacy Engagement

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Engagement in energy and water is evolving

• Companies need to own their relationships with their customers and

manage their risks

• When there is imperfect competition / monopoly engagement is unlikely to

happen without

• Effective conduct regulation
• Regulatory incentives
• Engagement approaches in energy & water have made significant strides

in last ~5 years

• Both sectors are learning from each other – and form further afield
• But – consumer, citizen and wider stakeholder views are also changing

Purposeful engagement to deliver public interest outcomes – a journey

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Where are the gaps?

• Cost of capital – uncertain role - public concerns around excess

returns

• ‘Citizen’ focused engagement
• Limited cross-sector view on affordability of essential services
• Little engagement on systemic issues / risks

The link between engagement and governance

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Engagement needs to shape and drive….. …..corporate governance and board agendas if….. ….public interest outcomes are to be delivered This isn’t just having a ‘public interest’ – or indeed employee or consumer - representaBve on the board

The role of the board in delivering public interest

• utcomes
• New-Pin corporate governance research
• Boards need to develop a far deeper understanding of the public

interest

• They need to use this to address the three key public interest

challenges in energy & water

• These are risks to the business and need to be actively managed

as such

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Delivering the public interest - challenge (i) AverCng ‘unacceptable’ dividends and returns What role can the board play to help move from this…. ….to this, without pushing up the cost of capital?

Delivering the public interest – challenge (ii) Building beeer regulator / company relaConships What role can the board play to help move from this…. ….to this, without poliBcal backlash and fear of regulatory capture?

Delivering the public interest - challenge (iii) The important role of the Non ExecuCve Director What role can the board play to move from this (wool over their eyes) …. …. to this, while retaining sight

• f long-term public interest
• utcomes ?

Governance also needs to evolve to keep in step with the energy and water transiCon - & societal change

• Changes in energy, and to a lesser extent water, are likely to cause

distributional impacts

• Increasing questions about what is ‘fair’
• A re-appraisal of what it means to ‘play in this space’
• Acceptance that dealing with environmental and social externalities

‘goes with the territory’

• More attention being paid to company purpose and advantages of

moving from a ‘shareholder to a stakeholder economy’

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What does it mean to be a purposeful company?

Environmental Social Governance

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E S G

The ‘ESG’ factors from SecBon 172 of the 2006 Companies Act and responsible investment are now firmly ‘in the frame’

Levers for change – board effecCveness check-list

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To meet the needs of current customers, future consumers and wider stakeholders boards need to ask….

• Is there clarity in the corporate structure as

to where responsibility sits for current and future UK customer needs?

• Is their risk appetite appropriately aligned

with public interest?

• Do they have an agreed set of criteria as to

what it means to be a respected corporate citizen?

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Delivering public interest outcomes through engagement

Zoe McLeod, Chair, South East Water Customer Challenge Group

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How can CCGs best challenge companies to consider the longer-term interest?

New-Pin February 2018 Zoe.mcleod@gmail.com South East Water CCG Chair

CCG role

To provide independent challenge to companies and independent assurance to Ofwat

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• the quality of a company’s customer engagement; and
• the extent to which the results of this engagement are driving the company’s decision

making and being reflected in the company’s business plan. Ofwat’s “long-term vision is to put current and future consumers at the heart of the way companies run their businesses” “…expect companies to be creative in exploring ways in which customers can best be engaged on long-term issues and consider the best ways to frame and interpret such engagement”

Clear outcomes

CCGs should challenge companies to ensure engagement is strategic, proportionate and effective. Companies must be clear what they are trying to achieve when engaging on longer-term issues. For example: 1. Develop understanding – so they can better plan for and meet future need e.g. to deliver resilient water supplies, protect the environment, deliver social well-being, maximise cost efficiencies. 2. Co-delivery – so customers become part of the solution to a potential future problem e.g South East Water’s Resilient Customer concept – understand values, attitudes and beliefs so can encourage behaviour change to help prevent and respond to future challenges. 3. Customer satisfaction – if you understand customer/stakeholders’ expectations for the future you can ensure you address them/demonstrate how you are addressing their priorities. 4. Legitimacy – involving customers in the process of making decisions incl. complex trade-offs between current and future needs – build trust 5. Unmet need – unlock customers’ creativity to better understand what services they might like to have if they could e.g. South East Water’s Futurologist

The aim should drive the engagement approach – who the company engages with and how they engage

ScruCnise the evidence base

CCGs need to monitor the robustness of research – mindful of the challenges: For example:

• Some customers may lack the information or

understanding of what is possible in the future.

• Some groups may find it hard to get their voice

heard. Behavioural:

• Status quo bias – natural preference to keep things

as they are

• Anchoring – heavily influenced by framing of the

questions

• Present bias – heavily discount the future – give

current benefits disproportionate benefit over future benefits

• Loss aversion – people tend to put more effort into

avoiding loss than ensuring gain

Approaches

• Game-ification
• More deliberative research
• Futurologist
• Engage experts
• Advocates – who can

represent others

• Careful framing - virtual

reality/videos Risk: un-intentional bias in views sought or information

Horizon scanning – challenge companies to take a broad view of the future

Political Economic Social Environmental Legal Technological

• Strategic DirecBon Statements, Insight Dashboard

Managing dilemmas – trade-offs

Affordability today Cost in the future

Reward Long-term CollecBve Risk Short-term Individual

No single soluCon

Business plan that balances the needs of current and future customers

ExpectaBons & prioriBes OpportuniBes/ challenges Needs/wants

But:

• Transparent approach –

flag tensions/mitigations

• Clear about the values and

perspectives that drive decisions

• Case by case basis e.g.

robustness, relevance research, credentials, practical considerations

• Coherent narrative

Responsible business strategy

South East Water Co-creating a Responsible Business Strategy:

• Build a consensus among customers/stakeholders about role

South East Water should play in wider society/ community

• Develop a clear understanding of where the company creates

value in society and commercially in the widest sense – helps to inform approach today and in the future

• Exploring integrated reporting - provides insight into the
• rganisation's strategy, how it relates to the organisation's ability

to create value in the short, medium and long term. = A local view of the water company’s role in the public interest?

Challenge the Company using the Sustainability First New-Pin tools

Delivering public interest outcomes through governance John Roberts, Chair, Electricity North West

@SustainFirst #PublicInterest #longterm

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Delivering public interest outcomes through engagement and governance Panel Chair: Ted Cantle, Sustainability First Chair

Sharon Darcy, Sustainability First Zoe McLeod, Chair, South East Water Customer Challenge Group John Roberts, Chair, Electricity North West

@SustainFirst #PublicInterest #longterm

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Learning from each other David Gray, Chair of Ofgem (GEMA)

Alena Kozakova, Chief Economist, Ofwat In conversaCon with Sarah Harrison

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Learning from each other

David Gray, Chair of Ofgem (GEMA)

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Learning from each other

Alena Kozakova, Chief Economist, Ofwat

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Learning from each other David Gray, Chair of Ofgem (GEMA)

Alena Kozakova, Chief Economist, Ofwat In conversaCon with Sarah Harrison

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Closing address Adrian Gault Chief ExecuCve Commieee on Climate Change

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Independent advice to government

• n building a low-carbon economy

and preparing for climate change

Embedding the public interest – a Committee on Climate Change perspective

Adrian Gault Acting Chief Executive

Wednesday 28 February 2018 Sustainability First, Looking to the long-term conference

The Climate Change Act 2008

Driving change & the Climate Change Act

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2050 Emissions Target A goal

1

Carbon budgets A pathway

2

Requirement that Government brings forward policies to reduce emissions & address climate risks A toolkit

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Commieee on Climate Change and AdaptaCon-Sub Commieee to monitor progress and propose change A monitoring framework

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Criteria are specified in the Act, which must be considered

• Science
• Technology
• Economic circumstances (including competitiveness)
• Fiscal circumstances
• Social circumstances, in particular fuel poverty
• Energy policy, in particular energy supplies
• DAs
• Circumstances at European and international level

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Carbon budgets are stepping stones to the 2050 target

73 Carbon budgets and the cost-effecCve path to the 2050 target

500 1000 1500 2000 2500 3000 3500 4000 4500 100 200 300 400 500 600 700 800 900 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 Budget emissions (over five years, MtCO2e) UK GHG emissions (MtCO2e/yr) Allowance for IAS Statutory 2050 target allowing for IAS emissions Legislated carbon budgets Historical emissions Cost-effective path to 2050 #UKClimateAction

Implications for energy prices and bills? Energy efficiency improvements for households can more than offset impact of low- carbon policies to 2030

For energy-intensive industries cost compensaBon and exempBons should remain so long as there are differences in low-carbon policy costs between the UK and internaBonal compeBtors

The Climate Change Act requires Government to publish its policies & proposals to meet carbon budgets

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The Climate Change Act requires the Government to publish policies & proposals to enable carbon budgets - on track to the 2050 target - to be met

• Our assessment for our June 2017 Progress Report was that there were significant gaps to meeBng

the fourth and fihh carbon budgets

• The gap to the fourth budget was 155 MtCO2e and the gap to the fihh budget was 260 MtCO2e

#UKClimateAction

The Government’s ‘Clean Growth Strategy’ was published in October 2017

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• This sets out the Government’s plan for

meeBng the legislated carbon budgets

• “Clean growth is at the centre of our

modern Industrial Strategy” – PM May

• It includes 50 key policies and proposals

the Government intend to implement across the economy

#UKClimateAction

Our assessment - there is still a policy gap to the fourth and fifth carbon budgets

77 Gap to carbon budgets aZer the Clean Growth Strategy (non-traded sectors)

50 100 150 200 250 300 350 400

2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 MtCO2e per year

New emission projections reduce but do not eliminate this gap

• Gap of 65 MtCO2e to 4th & 5th

carbon budgets

• Gap of 100 & 130 MtCO2e to cost-

effective path

#UKClimateAction

Four key next steps to meet carbon budgets & prepare for 2050

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1

Remove delivery risks around exisBng and new policies

2

Provide detail on how policy proposals will be delivered

3

Set out new policies closing gap to 4th & 5th carbon budgets

4

Prepare for 2050 (e.g. kick-start a CCS industry in the 2020s)

#UKClimateAction

Government has identified key milestones - we will monitor progress against these & extra actions required

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• Government has idenBfied that publicaBon of the Strategy is not the end of the process
• They have set up a Clean Growth Inter-Ministerial Group, and have commiled to annual

monitoring and updaBng of the Strategy. We will monitor progress annually against the Government’s idenBfied milestones, and the extra milestones required to close the policy gap.

#UKClimateAction

Recent progress mainly in electricity generation

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UK GHG emissions by sector (1990-2016)

50 100 150 200 250 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 MtCO2e Power Industry Transport Buildings Agriculture & LULUCF Waste F-gases

Meeting future targets requires emission reductions across the economy. Also raises questions about balance of action at national and devolved or regional level

To reduce emissions from heating the options are known…

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Reducing CO2 emissions from heating to near zero by 2050 likely to require a mixed solution

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Without knowing the full 2050 solution, there are cost- effective actions to take now

83 To 2050…

?

www.theccc.org.uk | @theCCCuk

Thank you!

Next steps Sharon Darcy, Director, Sustainability First

@SustainFirst #PublicInterest #longterm

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Building on the work of New-Pin

• Reflections on today
• The Levers for change are in your hands – please share
• New-Pin governance round table
• Project Compact – helping energy and water companies better

manage the politics of fairness and the environment

• Building a model to map political and regulatory risk in respect

to fairness and the environment

• Learning what works and what doesn’t from other sectors
• Developing Public Interest Compacts to get a step change in

relationships with stakeholders

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Thank you! Please join us for networking drinks in the Bishop Partridge Hall

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