Energy boss says Ofgem ruling puts new Scottish jobs at risk
THE head of Scottishpower has warned that the creation of hundreds of much-needed new jobs in Scotland has been put at risk by a controversial ruling issued last week by the energy regulator.
Speaking to The Herald, chief executive Keith Anderson said his and other firms from the sector are in discussions with Scottish and UK Government officials about proposals from Ofgem that would slash the returns they are allowed to recoup from tens of billions of pounds of upgrades in the coming five years. The “draft determination” from Ofgem, headed by newly-installed boss Jonathan Brearley, also cut the total amount that energy firms had proposed to invest by £8 billion to £25bn.
The latter is of concern to Mr Anderson – a vocal campaigner for the role of green energy in the country’s economic recovery from Covid-19 – because it limits the scope of proposals Scottishpower has put forward to the Scottish Government in discussions during the past two months. He said it also flies in the face of UK Government’s push to kickstart a “green recovery”, as outlined last week in Chancellor Rishi Sunak’s mini-budget.
According to Mr Anderson, Scottishpower had originally been intending to spend £1.4bn on its transmission networks in Scotland during the coming five years.
Following the onset of the pandemic, that was then upped by an extra £1bn that would be pulled forward from future investment budgets.
Under Ofgem’s proposals, the additional £1bn would not be allowed, while the original £1.4bn will be cut to £900 million. Mr Anderson said the difference of £500m represented 500 new jobs and apprenticeships that will not be created.
“You have got a Government policy saying one thing, and the regulator saying something completely different,” Mr Anderson said. “Given the current economic crisis, that makes it even more strange.
“We are in conversations with the Scottish Government and we are talking to the UK Government as well, saying look, if this is what you want, then you are going to have to tell Ofgem that is what you want. There is not very much time to do this, because once this is settled, that’s it settled for five years.”
Following last week’s draft determination, the proposals are now out for eight weeks of consultation. After that, Ofgem will consider all the available information, with a final decision expected in late November or early December.
The energy regulator is responsible for setting price controls that dictate how much money gas and electricity companies can earn, while giving them scope to fund new investment through their charges to customers. Mr Anderson said these charges are averaged out over a 40-year life span of the new assets, meaning that £1bn equates to an extra 50p per year per customer.
“We don’t want to put any extra charges on anybody’s bill, but the view of everyone we speak to is that for 50p a year, that is massively good value,” Mr Anderson added.
Ofgem is also cutting what is called the “baseline return on equity” – essentially the amount of future profits that can be collected on infrastructure investments – from roughly 8% to less than 4%. Mr Brearley said last week that this would mean less of consumers’ money going “towards network companies’ profits, and more towards driving network improvements”.
While consumer groups welcomed last week’s announcement, backlash from the industry was swift as executives pointed out that Ofgem’s proposed returns will be among the lowest in the world. Iberdrola, the Spanish owner of Scottishpower, supplies energy to more than 100 million people in a dozen countries, including many where returns are more attractive.
In its initial response, Scottishpower described Ofgem’s proposals as “a massive missed opportunity” that makes “no sense whatsoever”, a message that Mr Anderson is keen to press home with urgency.
“Acting now is quite critical, because the further the process goes along, the more it becomes about smaller details and technical adjustments,” he said. “The longer this takes to resolve, the longer the delay in getting started on our investment plans that will create jobs in a period that everyone knows will be extremely challenging for young people coming into the job market.”