A Nation of Discontent

What could the 20th of October 2010 Mean for the Utilities Industry?

Written by Gill Ringland, Chief Executive and Fellow, SAMI Consulting, Published in Utility Week w/c 8 November 2010

The waiting is may be over, but the visible impacts of the Comprehensive Spending Review (CSR) on the UK economy are still someway in the future. 2010 may be seen as a somewhat gentle planning prelude to a 2011 economic and business cacophony. Utility companies, possibly more than most, need to plan ahead for potential deep social discontent as austerity measures begin to get hold of the economy. The coalition government, having garnered post election public consensus and support for deep cuts, has now to undertake these immense austerity measures. The challenge won’t necessarily be in implementing the cuts, but in the public’s reaction to them. These are some of the events which Utility businesses will need to plan for:-

• Business continuity planning will become important as nationwide stoppages may disrupt many aspects of business operations. Industrial action from Royal Mail could impact the delivery of consumer bills during peak billing periods. Even in a deregulated postal market, the last mile is still dominated by a national monopoly, so getting bills out and revenues in could be seriously impacted. Furthermore, disruption to public transport systems could leave key employees resolving situations such as call centre employees being stranded at home. Utility companies should test all existing business continuity strategies against a range of scenarios to take account of impacts outside of the norm.

• Trade Unions may garner collective member support against the cuts, widening their dispute with the government, and combining dissent from both public and private sectors such as oil workers, the utilities, and communication workers. France has been brought to its knees this past week through widespread action, over retirement age in their case, but with over half the petrol stations in France without fuel, and capacity at major airports seriously reduced, UK trades unions may learn from their French counterparts and adopt similar tactics. Utility companies, many of whose employees are members of trade unions with large numbers of public sector employees, should assess the impact any extended action (however unofficial) could bring to their operations.

• Current estimates of 500,000 public sector job losses coupled with 500,000 private sector redundancies could significantly impact the Utility companies ‘in arrears’ accounts. The potential for significant numbers of householders struggling to pay utility bills in 2011 could have a double-dip impact on utility companies; impacting revenues and profits, and also bringing the cost of utility bill and profits of utility companies back into the news headlines. Utility companies should plan for increases in defaulting customers, and the press and public reaction to utility bills as public sector cuts bite.

• Reacting to this, regulators may feel their hands forced to react to public unease over utility charges and profits, ignoring the long-term need to invest in core national infrastructure in favour of short-term public acquiescence. While this is unlikely, as the coalition government recognises the need for investment in energy security, the uncertain public reaction to cuts could prompt a precipitate an uneven response to a sector seen as an easy target by the general public.

• In the meantime, we expect a resurgent Labour Party to produce and campaign on a plan to reduce the deficit at the same time as “punishing” those who are seen to have caused it. This will increase business unease and pose problems for long-term investment planning in a sector where billions of investment is needed to simply deliver a business- as-usual service to its consumers.

However the political debate pans out, the Coalition’s actions may not sustain the public support for cuts. Utility businesses must plan for the possibility of the UK sailing into the eye of the Perfect Storm.

The above are highlights from a recent SAMI Consulting scenario planning think tank focused on the potential impact of the coalition government’s upcoming spending review.

uploaded 6 November 2010