EU Skills Response to Ofgem’s RIIO-2 Framework

Energy & Utility Skills’ Response to Ofgem’s RIIO-2 Framework Consultation

Ofgem has been consulting on the shape and content of framework for the next price control (RIIO-2).

Energy & Utility Skills’ Response to Ofgem’s RIIO-2 Framework Consultation

The key proposals made by Ofgem are centred on: giving consumers a stronger voice, responding to how networks are used, driving innovation and efficiency, simplifying the price controls and fair returns and financeability. The consultation closed on 2 May 2018 and they will make decisions and report the outcomes in summer 2018.

Energy and Utilities Skills submitted a response, focused on the need for workforce resilience thinking within RIIO-2, on behalf of its sector members and informed by its strategic Energy & Utilities Skills Partnership CEO Council. The concerns expressed regarding the current lack of workforce resilience focus within RIIO-2, was echoed by four of the main utility unions – GMB, Unison, Unite and Prospect.

In the response we outlined our general support for Ofgem’s overall approach:

“Our overall aim is to ensure a regulatory framework that drives innovation, supports the transformation to a low carbon energy system and delivers the sustainable, resilient, and affordable services that all consumers need” “… the regulatory framework will need to evolve over time, and we will need to respond to unforeseen challenges as they arise. A key part of our approach will be to build resilience and flexibility into the framework. We will also continuously monitor developments, seeking to learn from what has worked (including rom trials, where appropriate) and responding in an agile way to changes.”

Our sector submission specifically focused on matters related to workforce resilience for the GB Energy sector. Our key recommendations are:

  1. The RIIO-2 framework consultation currently makes no reference at all, to ensuring that the GB energy sector retains a resilient, skilled and sustainable workforce. Ofgem must address this critical resilience omission, to make explicit the value of skilled human capital in ensuring a reliable, safe and secure energy system delivering optimum value to customers.
  2. RIIO-2 must embed long-term resilience thinking ‘in the round’ for the whole regulated energy sector, to drive efficiencies and enable the attraction and retention of vital talent. We see no current evidence that Ofgem can rely on other existing government policy frameworks to protect the sector’s efficiency, productivity, workforce resilience and sustainably. Specific resilience action is needed through the RIIO-2 framework.
  3. Ofgem and RIIO-2 explicitly take into account energy supply chain stakeholders’ confidence in the market, and their sustainability, in the same way that Ofgem and RIIO-2 will do for investors. As these stakeholders are not obliged to operate in utility markets, and are at liberty to leave or adjust their risk premia, should other sectors or countries prove to offer lower risk, better returns or be more viable in the long-term.
  4. It is vital that RIIO-2 builds in the necessary resilience thinking and assurances to protect the sector. Ofgem has a duty to promote economy and efficiency, contribute to the achievement of sustainable development and makes clear its commitment to secure long term resilience in the energy sector. To secure change, we recommend that Ofgem consider available best practice from other comparable regulatory bodies. Ofwat, in their final methodology for the PR19 price review (2020 to 2025) has enshrined workforce resilience as a major component of its approach to ‘resilience in the round’ and offers valuable precedent.
  5. Therefore, we suggest that Ofgem reviews the Ofwat approach to ‘resilience in the round’ and adopts an equivalent approach for workforce resilience in RIIO-2. A copy of our policy analysis for the Ofwat Final Methodology can be accessed by clicking here.
  6. Enshrining workforce resilience in RIIO-2 will provide direct policy read-across and productivity benefits to the National Infrastructure Plan.
  7. Embedding workforce resilience and sustainability in RIIO-2 directly supports Ofgem’s Social and Environmental Obligations. It provides Ofgem with robust evidence to demonstrate how it meets these obligations, when submitting its annual letter to the Secretary of State for Energy.
  8. In RIIO-1, Ofgem primarily sought to protect existing skills and the required volumes of operational staff. The framework for RIIO-2 offers Ofgem and the regulated energy sector a chance to start to build a resilient, skilled and sustainable workforce, that will help ensure a reliable, safe and secure energy system delivering optimum value to its customers.

This week Ofgem published our response and it can be found on their website via this link.