Policy and regulatory change in the energy and water industries

Policy and regulatory change in the energy and water industries

2 Policy and regulatory change in the energy and water industries

Identifying the issuesExperience has shown that utility companies are aware of the issues that need to be addressed by a change in policy or regulation well ahead of the regulator or government. We help companies as they work to define the challenges that the market needs to address, so that they are able to raise awareness of the need for policy change.

Evaluating the policy optionsConsultation and evaluation are key aspects of developing robust and workable regulation.

We work with governments and regulators, using our deep industry expertise, as they prepare industry consultations.

We work with utility companies to evaluate the impact of proposed

Implementing changeOnce the consultation is finished and the design is complete, we work with stakeholders – government and utility companies – to ensure that change is implemented. For companies, this might mean ensuring that their internal infrastructure and governance systems meet the rigours of the new regime. Often, it requires revision of a company’s operating model, its business systems and its management information.

Enabling business as usualOnce policy and regulatory changes have been implemented we work with all stakeholders to ensure that they meet new requirements resulting from the change. This can include embedding both the business changes that result, such as the introduction of new roles and responsibilities, and the processes and controls put in place to monitor compliance.

We also work with governments and regulators as they monitor compliance with the new policy or regulation as they evaluate its success in delivering against the original objectives of change.

policies on their businesses, and where the proposed area of change is a business priority, we will also help companies to develop alternative policy options for consultation.

Designing policy and regulation

Once the direction of policy has been set, we work with governments and regulators in leading the detailed design of policy. At this point, it is important to keep in mind the original business case for the change – and to ensure that the detailed design of the policy supports that.

We also work with utility companies to analyse the impact that the change in policy will have on their business operations, so that they can influence the detailed design to mitigate the risk that implementation is overly onerous.

identify the issues that policy-makers need to address

evaluate the policy options to address those issues

design and implement new policy and regulation

embed change resulting from policy and regulation into business as usual.

Change in government policy. Change to industry codes. Change in regulatory reporting requirements.

Change is a fact of life in the utilities sector. At Baringa, we provide advice on the policy and regulatory changes taking place in the energy and water industries. Working with governments, regulators, regulated and non-regulated companies, investors, energy consumers and new market entrants, we support our clients through the full lifecycle of policy and regulatory change, helping to:

Our support included: the creation of a compliance strategy and approach from identification of obligations through to the creation of specific programme documentation and system design

implementation of the compliance approach across the programme including customer operations, field force, marketing to meet programme milestones

support for legal interpretation of obligations and engagement with DECC

detailed analysis of obligation clauses to create requirements on the programme by customer type, process step, fuel type, solution area

for requirements met through system design – Detailed matching of each requirement to change request or element of design specification

detailed matching of each requirement to a policy, process step, training, commercial agreement or communications guidance – for requirements met through non system design

testing of obligations through product test (system design) and UAT (non-system design), and

incorporation of regulatory risk into business risk management processes (risk and control design, monitoring and reporting).

3Policy and regulatory change in the energy and water industries

How we’ve helpedWe conducted a Smart metering compliance review on behalf of a major international utility company to ensure that it complied with the regulatory framework introduced by the Department of Energy and Climate Change (DECC).

Lifecycle of policy and regulatory change

Government and

regulators

Energy and utility companies

Indicative balance of focus(For self-governed changes, the balance shifts towards the industry)

1 Issue

identification

2 Consultation

3 Detailed policy

design

4 Respond and implement

5 Business as usual

• Test hypotheses

• Define a clear understanding of the issue

• Call for evidence

• White Paper development

• Understand potential impact

• Form a view on how much to influence future developments

• Raise awareness with investors

• Basic design of policy options

• Consultation process

• Develop business case

• Selection of policy option

• Impact analysis

• Consultation response

• Proactive engagement, eg propose alternatives

• Coordinate industry’s implementation

• Monitor consistency and resolve differences of opinion

• Manage internal changes

• Manage changes including: opperating models, processes business systems, or performance monitoring

• Lead the detailed design of policy or regulation

• Align detail with overall business case

• Fulfil new duties

• Monitor compliance

• Manage realisation of the business case

• Fulfil new duties

• Manage compliance

• Optimise performance

• Evaluate detailed proposals, respond to consultations and participate in discussions

• Prepare for implementation of likely changes

Baringa Partners LLP, 3rd Floor, Dominican Court, 17 Hatfields, London SE1 8DJT +44 (0)203 327 4220 F +44 (0)203 327 4221 E info@baringa.com W www.baringa.com© Copyright Baringa Partners LLP 2013. All rights reserved. This document is subject to contract and contains confidential and proprietary information.

For more information please contact:

info@baringa.com

+44 (0)203 327 4220

About Baringa PartnersBaringa Partners LLP is an award-winning management consultancy that specialises in the energy, financial services and utilities markets in the UK and continental Europe. It partners with organisations when they are developing and delivering key elements of their business strategy, as well as working extensively with government and regulators to provide policy and advisory services. Baringa works with its clients either to implement new or optimise existing business capabilities that relate to their people, processes and technology.

Baringa is recognised both in the UK and internationally for its unique culture, which has been acknowledged by a number of awards and accolades and continues to reaffirm Baringa’s status as a leading people-centred organisation.

Energy and water policy and regulationThe energy and water sectors are governed by a complex policy and regulatory environment.

In recent years, the UK Government and industry regulators have had to address a number of significant challenges, while maintaining an overall balance between the sometimes conflicting requirements to:

maintain security of supply

facilitate environmental sustainability, and

ensure affordability of bills for consumers.

Policymakers have developed a range of industry reforms, from reviewing how the competitive retail market is working for energy consumers and introducing retail competition in water for the first time, to reforming the investment incentives in the electricity market to promote decarbonisation.

Companies need a robust strategy to navigate the policy and regulation lifecycle so that they can move from the influencing and business impact assessments stage through to implementing business change.

We work with a variety of clients throughout the policy and regulatory lifecycle, including Government, regulators, regulated and non-regulated companies, investors, energy consumers and new market entrants. Our work in this area ranges from advising on the development of policy and regulation to assessing the impact of upcoming regulation on market participants, and to implementing business model changes and process transformation in energy and water companies as a result of new policy and regulation.