Current Trends in Utility Consulting

PricewaterhouseCoopersThe last year has seen a significant shift in the performance of the global economy, particularly following the banking crisis of mid 2008. The utility sector has remained resilient to the turmoil but not completely unaffected. We identify three key trends in the sector:
  • Ensuring financing for the sector remains secure in the face of banking turmoil;
  • Dealing with the combined impacts of recession, regulatory reviews and also issues associated with cash collection as economic circumstances become more challenging;
  • Finally there are those aspects of the utility sector which are expected to grow significantly in the near term – most notably the construction of new nuclear power stations and the UK wide roll out of smart metering.
As companies in the utility sector have faced each of these three issues they have been supported by their consultants and advisors. While budgets for consultancy have been tightened, it is clear that consultants who continue to provide clear innovation or value added for their clients have succeeded in supporting the ongoing success and strength of the utility sector.

Keeping the finances steady

Many utility companies, in particular network businesses such as water companies, gas and electricity networks have highly geared financing structures (i.e. they have a significant proportion of their activities being financed by debt.)

The banking crisis of 2008 limited the availability of funds for utilities to refinance existing debt or to place debt for new capital expenditure.

Consultants and financial advisors have supported clients throughout this period to help keep the finances steady. Consultants have been supporting with the development of business and financing plans and making the case to the markets to ensure the limited funds available are directed towards the utility sector.

The three R’s Regulation, recession and revenue

The financial crisis has been accompanied by economic recession which has meant a reduction in demand for utility services and pressure on margins and therefore costs.

In addition to facing recession, both the water and electricity networks sectors are in the midst of regulatory reviews.

These combined factors have put an emphasis on utilities working with their consultants to seek out cost reduction opportunities either in operating costs or capital costs. Consultants have responded with the development of cost effective cost reduction programmes. Pressure on costs has put significant emphasis on innovation in particular in the management of capital expenditure. Consultants have responded with the development of asset management optimisation approaches which allow utilities to reduce asset ownership costs and to outperform regulatory targets.

The recession has also meant that customers have been slower to pay their utility bills – this has put an emphasis on innovative revenue collection solutions from the consultants who have focussed on new collection approaches and also on targeting customers at risk of non-payment faster to allow the utility to support those customers before non payment becomes a problem.

Growth in challenging times

The utility sector is also facing important future developments. For example, preparations for the construction of new nuclear power stations in the UK is underway drawing on a wide range of skills with advisors supporting in a range of areas:
  • Support with supply chain development and up-skilling for the sector in preparation for nuclear new build – critical to this is assessing the skills required an making early preparation/training arrangements so the skills are in place at the time required.
  • Project management services associated with new nuclear build projects: the development process is long term with lots of critical dependencies successful delivery ensures having appropriate project management in place;
  • Assisting with the development of financing arrangement plans: the government has required that for each new nuclear power station a detailed financing plan has to be prepared to show how funds will be raised an managed during the operating life of the plant to fund its eventual decommissioning and disposal. Preparation of these plans draw heavily on financial modelling, and pension fund management skills.
A second area of growth for the utility sector and its support services will be the roll out of smart metering in the UK between about 2013 and 2020. Smart metering represents another significant investment programme for the UK utilities sector. Experienced consultants are assisting clients in the sector with the development of strategy for smart metering roll outs, consortium building, technology selection and supply chain identification, new tariffing design and business model re design.

Such challenging and at the same time dynamic times have meant that consultants in the sector have been highly supportive of their clients by brining new innovations forward and also seeking to maximise the impact of consulting at a time when it is recognised that clients budgets for consultancy are limited and focussed on providing the greatest value.

Duncan Michie is a Director in PricewaterhouseCoopers’ (PwC) Energy, Utility and Infrastructure practice. He can be contacted on Duncan.michie@uk.pwc.com or 020 7804 7394.
To find out more about what PwC has been doing to assist clients in challenging times visit www.pwc.com or www.managinginadownturn.com