Through this process, we’re beginning to see the various options the company is considering however, how these elements combine and work together in a cohesive way will only become clear in the next phase, when the overall business plan is pulled together.
We believe SGN has adopted a sensible bottom-up approach to its business plan development and we gain comfort in seeing the company’s experts fully engaged in the tasks in hand.
However, we’ve also made it clear to the Board we’d like to see a more top-down vision as well, with a clearer articulation of the sort of company SGN aspires to be. We’re hopeful to see this aspect come through as we continue our work.
Heat policy and investment decisions
Through working with the company, it’s clear one of the biggest challenges it faces is how to deal with the uncertainty surrounding the UK Government’s heat policy and in particular, its position on de-carbonisation.
Ofgem’s strategy document for the next price control proposes a ‘re-opening mechanism’ to cover any impact of future government policy change. However, we’re concerned how SGN can make decisions in the current price control period (which runs to 2021) not only ensuring gas continues to flow safely, but also ensuring the risk of having stranded assets is kept to a minimum.
We’ve also been talking to SGN about the trade-offs it’s making between the repair and the replacement of aging assets and what pay-back period it would expect for any investment. We hope this is something Ofgem will provide more clarity on in its sector decision.
Analysis of research
In parallel to our regular CEG meetings, members of our customer research sub-group have been getting their heads around SGN’s own customer research, including the methodologies being used.
Other CEG members (with specific interests) have participated in ‘deep dives’ into particular areas of customer research. Eg on younger, on future, on business and (coming-up soon) on vulnerable and hard-to-reach customers. This work has provided additional valuable insight as well as reassuring us customers are being listened to.
CEG members have also attended some of the company’s ‘moving forward together’ workshops, which involve a wide range of stakeholders. In addition, we’ve been to some of the company’s specific ‘future of gas’ events.
With so much research and engagement going on, we’ve asked for a matrix to be created, to show how different research feeds into different parts of the business plan and how confident the company is in the accuracy of its results.
For example, as a group we noted how customer and stakeholder views’ could differ, while issues around the future of gas could be quite hard for some customers to engage with. This means more reliance is placed on stakeholder input rather than customer. SGN is now working to populate this matrix, which we believe will be helpful to all parties.
As a group, we continue to reflect on the best ways of working. We now have significant segments of each meeting as ‘CEG only’ time, which allows us to work through in detail our position on issues and avoid any temptation for this to become a presentation-heavy process led by SGN.
We’ve also formed three sub-groups which focus on SGN’s three themes underpinning its business plan. These also broadly align with Ofgem’s three outcome areas.
While we feel to-date we’ve provided SGN with a lot of challenge and questions, our formal ‘challenge log’ remains relatively empty. This may be because we set the initial bar intentionally high, but we do expect more challenges to be added when we see the first draft of the company’s business plan.
We did provide SGN with an end of Phase 1 report, which provided some early steers plus a range of questions which we expected to have answered when first draft of the plan was unveiled. This report was the output of a ‘CEG only’ session held in December, which also demonstrated the value of having this separate time together.
While we’ve not logged many formal challenges to date, we’re clear we’re having a positive impact on the development of SGN’s business plan.
In response to specific CEG challenges, SGN has:
- Carried out research with 50 major gas users
- Started to engage with local authority sustainability teams, rather than just the housing teams
- Started exploring how it’s ‘10 Year development plan statement’ required through industry codes, can provide the basis for network reinforcement decisions and be adapted to reflect the range of planning scenarios which are being discussed. Particularly given the uncertainty around heat de-carbonisation
- Rescheduled its ‘willingness to pay’ research, reflecting our concerns it would be premature without a clear view of the options needed to be tested
- Committed to carrying-out research to test what really matters to customers about unplanned gas interruptions. This was given our concerns over Ofgem’s proposal to require appointments being a costly solution, not actually delivering on what customers really want.
Because of the way we’re set up, with clear representation across both Scotland and the south of England, we’ve been able to ensure different regional perspectives are brought to bear in how SGN approach its plan.
While we haven’t seen major differences in customer views between the two regions, we’re very mindful of the Scottish Government’s focus in particular on vulnerability and its ambitions around climate change.
In recognising the importance of the Ofgem framework in whether SGN’s plan meets the needs and wishes of its customers, we decided to respond formally to Ofgem’s consultation on the sector methodology, highlighting the evidence we’d gained around what SGN’s customers and stakeholders think.
While we believe most other company CEGs and user groups are taking the regulator’s framework as read, we hope Ofgem will find our customer perspective helpful.
There’s now a considerable amount to be done over the remainder of the year. SGN has to submit to Ofgem drafts of its business plan in July and then again in October and this leads-up to its final submission in December 2019.
We’ll be providing SGN with our views on each of its drafts as they are created and sharing our initial reactions with Ofgem’s own appointed Customer Challenge Group, ahead of providing our final report at the end of this year.
Remember, you can also have your say on SGN’s plans by joining their customer panel, or by completing their online survey.