The great UK energy debate – lost in translation?

Pretty much anyone reading this blog will be aware that there’s a massive debate going on in the UK as regards how much we should pay for our electricity and / or gas. If you’re not aware of the debate I can only assume you’re not in the UK or you live under a rock, because it’s been pretty much wall to wall coverage in every newspaper and TV / Radio news bulletin for the last month or so. Both sides are banging away at each other, but there really doesn’t seem to be much genuine dialogue or understanding between two pretty entrenched sides

Do we really understand the energy industry?

The narrative has so far been pretty solidly against the energy companies. That they’re nasty and mean; act as a cabal; can’t be trusted; consumers need more protection, and that because of all of the above, the UK doesn’t have a proper market.

I’m pretty sure if this goes on, Npower and E.On will be found to have sinister German historical connections, such as involvement in Sarajevo 1914 as part of an attempt to control European coal supplies or something. Don’t think the British firms will be allowed to get away from the rampant paranoia. Centrica and SSE and their predecessors will have done something wrong. Let’s not start with Scottish Power being used to funnel money that could fund independence to Franco’s heirs.

Ok, so I exaggerate for comedic effect, but I sometimes despair at the way complicated business issues are simplified to the point of being wrong, so that the story can have relevance to a wider audience. It’s the worst sort of patronising behaviour. “The proles won’t understand the real story, so this is what we’ll feed them”.

This happens not just across the media, which by its very nature is a short-term product (bar one or two exceptions with space to do proper analysis); but also in the political world, where Labour has just been exceptionally politically successful by bashing the electricity and gas industry, and by extension the current government. As ever with politics, this is, by its very nature a short-term attack designed to push wider public perception to Labour’s side when it comes to crossing the box. There will be another big thing in a few weeks, be it health, education, crime or inflation and all of this will be forgotten.

That neither side of Westminster has a coherent long-term energy policy, and that the UK has been hampered by a lack of any courageous strategy since privatisation (in of itself part of the problem as it was ideologically driven and therefore created a badly faulty market) makes me more frustrated with the current debate. Energy is, by its very nature a long-term business. Multibillion £ investment decisions will only drive returns years, maybe decades after the capital is assigned due to the inherent industrial realities of the trade. The industry does not fit well with our short-term political cycle. Politicians can make cheap capital on issues that they know will not be sorted until the next government, or one after. By that time, they’re either promoted, or in a better paid consultancy job.

I’ll stop slagging off the people I’m paid to attempt to influence now…

 

Defining the debate

At the heart of this, there are two pretty hefty questions:

1) What are energy companies for?

2) How much profit are they allowed to make?

Answering the first, there’s not just one answer. Any company that is not a nominated “Not For Profit” is designed to make money for its shareholders. Fiduciary Duty for Directors specifically sets out that their responsibility is to maximise the good of the business; to maximise revenues. This appears to upset a certain audience in this debate – that something so vital to basic human existence is in the hands of an organisation specifically designed to “put profit above all else.”

This is a pretty black and white view of a business. Energy companies, or at least those in this debate, are not capitalism red in tooth and claw. The genuinely do recognise (some more than others) their place in wider society. They understand that they are meeting a human need, not a want and must therefore be responsible when it comes to pricing and wider corporate behaviour. We’re not talking about private equity backed tech incubators that have no relevance to wider society. Or even private equity backed oil refineries.

Energy companies could make a lot more profit than they do now. If they showed the ruthlessness of the mining and metals sector, or wider commoditised industries (grain, sugar etc) we’d all be a lot power than we are now. I’m not saying that they’re perfect, or that they do this entirely voluntarily given the not insignificant government and cross border oversight, but the fact remains that the Big 6 clearly understand that there is a balance to be managed. between profitability and corporate responsibility. As a mate that advises one of the big 6 was quick to remind me, “UK consumers pay less than the vast majority of their European peers for both gas and electricity”.

We made a choice at privatisation that the UK government would not own assets, but would regulate the industry. This is the system we chose, and without fundamental reform – eg the creation of an EdF or E.On style sovereign backed national champion capable of working in liberalised markets – we have to accept it for what it is.

Energy companies therefore are here to make money by both facilitating commerce and keeping us warm and switched on. They are however expected to understand that the system we created allows them to make a profit, they do not have carte blanche. Their side of the bargain is to demonstrate they understand the bargain; embrace your powerful position in society and don’t take the piss. If one person dies because they couldn’t afford heat, it’s too many.

So what’s the real issue here – that these companies make massive profits? This is where I wish commentators had more of an understanding of how energy companies are structured and funded. The first thing to stress is that whilst the total profits can seem massive (because they are), these are not massively profitable businesses. There’s no significant difference in their profitability compared to supermarkets. If you want to make real money, quickly, in the energy industry go upstream, find some oil (like its easy) and sell the field to Shell.

The second thing is that the massive infrastructure investments that must be made in the UK to keep the lights on cannot be funded by cash profits. Put simply, EdF and its peers don’t make enough to build a new power station and ensure they can get the fuel in it to run properly, just by using cash. Major infrastructure projects must therefore be paid for by project finance (debt). The kicker here is that the interest rate on the debt will be based on how profitable a company is.

Therefore, if you want the lights to stay on and to keep warm this winter, we need the energy companies to remain profitable, and reasonably profitable at that. If the interest rates get too high, because the energy company isn’t profitable enough, there’s a few unpalatable options. Brownouts and cold nights, or one way or another it will be the consumer that pays; either through higher bills or taxation.

I’d also like to come back to the long-term nature of the industry. From the initial planning stage, to the decommissioning and clean-up of the site, an energy company has to shell out an awful lot of cash on its asset base – over the course of between 30-60 years. Of course there’s a (more or less) captive market for power and heat, but at the same time the asset base is not a constantly profitable machine. The long-term planning necessary, in addition to the inherent costs to running this sort of business means that when considering caps on profitability (as is the case in Ulster) the long-term life of the asset base has to be considered.

In other words, if we, the people and our elected representatives want to make sure we get the best deal on energy, both now and for the future, we need to speak the correct language; we need to understand how the industry works, so that there can be genuine dialogue, and therefore eventual agreement. Im not arguing for no regulation. I’m not arguing for fees to continue rising unabated. What I a saying isthat any  regulation should be based on a sound understanding of the industrial and capital realities of the industry. Any government needs to know how far the energy industry can be pushed before it walks away, or it runs the risk of being humiliated.

 

Energy needs to up its game as well

I have so far given the energy companies the benefit of the doubt. I’ve suggested the media and politicians need to understand the long-term dynamics inherent to the industry, and to stop focussing on the short-term negativity that has been so all persuasive. However there are improvements that could be made in both communications and operations that would better position the Big 6.

We have to consider operations first, as comms should always be a true representation of an organisation, and should never be used as a short-term smokescreen. Obviously each company is different. Centrica is a FTSE listed British / US focussed vertically integrated energy company with significant upstream resources. Three of the big 6 are UK units of state backed European giants that have virtually no upstream resources. It’s clearly difficult to come up with a template for companies that are genuinely different.

I would suggest that all of the big energy suppliers need to renew their covenant with the UK. Downstream energy utilities are different. Whilst they want to be branded “energy” companies because it sounds dynamic, the sexy stuff is done upstream and in petro chemicals units. Floating LNG, Hydrogen Sulphide that burns metal, ultra deep water exploration, specialist high octane fuels are all from a different part of the industry. Importantly they are all also about choice – whereas electricity and heating are basically human needs. It sometimes appears that the big domestic energy providers forget that they are entirely different to other businesses for two simple reasons. Their product keeps us alive and they effectively have a captive market, so they do not have to expend the energy to create a competitive position that is inherent to the business models of Sainsbury, Ford or Deutsche Bank.

If the energy industry doesn’t want to wake up one morning and find a UK government has decided to repeat the Standard Oil process of forced divestiture of asset base, the industry has to do a better job in explaining the way their business works for the benefit of UK society. This is an existential challenge. The potential for death is in play. If the reality of the situation is that there is excessive profiteering, the big 6 need to accept that under current market conditions, with such a slow recovery from a terrible recession, Government might force their hand. They might have to significantly change pricing and operational / accounting structure, and / or invest a significant slug of capital in convincing the UK that it is not being ripped off for the benefit of shareholders.

As a comms person, I’d suggest a long running campaign that considers the needs of all levels of society. This is about persuading the average person. As my boss says, “politicians are people too”. A few free ideas, some comms, some operational:

· Sponsor engineering and physics courses at school that will help educate a new generation about how the energy business works. This has worked very well in other parts of the world, particularly the post-soviet space.

· Offer special tariffs for the elderly and infirm. It won’t cost much and it will buy considerable good will

· Develop a set of collateral that can take all key stakeholders on a journey of how to build and run a power station – and how much it costs – show the massive investment in both capital and intellectual capacity that is deployed in the UK by the industry

· Demonstrate the value they give to the UK – keeping the power on providing employment, paying tax, energy security: the big 6 are all from friendly countries

· Intelligence: focus on the high tech side. Develop an understanding of how specialist the energy industry can be. Make it sexy – think Exxon adverts with swirling helixes. Make the energy industry somewhere we can be proud of

 

Conclusion: communication is worthless without mutual understanding

At the end however, there’s no magic bullets. Group CEOs of the big 6 need to commit to not just sounding responsible, but actually being responsible. This is when PR can be intelligently utilised. As someone who has worked for a number of organisations that have wanted to use PR as a diversion, I know that sooner or later, it just doesn’t work. At the same time, the other side need to consider the alternatives. There is a genuine danger of brownouts in the UK if the energy industry is pushed to the limit. To drive genuine dialogue, both side in this debate need to be prepared learn lessons from each other.

Where next for Munster?

This blog was driven by my reaction to an article by Dean Ryan in the Guardian – http://www.theguardian.com/sport/blog/2013/oct/17/heineken-cup-munster-gloucester?commentpage=1 it got me thinking a bit about my beloved Munster rugby, the way we’re viewed by other people and the way we view ourselves.

Mr Ryan sounds traumatised by the experience of being involved in the “miracle match”, perhaps even a little bitter – if not about the result of the game itself than the near inevitable romanticisation of it in the years after.

I’ve seen Munster play at various grounds in England and Wales, including the win against Biarritz, but have never been able to get across to limerick, but my impression is we (I’m a british-irish london based munster fan) need to draw a line under the past and move on.

The tale of progress through the Heini; heroic last-ditch wins, the “hand of Back” type tragic losses; never being defeated at Thomond Park; cussed defence; teaming rain; fanatical fans and ROG’s boot was always a bit of a myth anyway. A valuable myth, but as ever, perhaps not the whole story.

Munster built an incredible team, with a lot of top quality local players, and a few carefully picked internationals to add either experience or star dust or both – Jim Williams, Dougie Howlett etc. Big funding from the IRFU and an independent deal from Adidas and Toyota allowed the final steps to be made.

After we’d won the cup twice, the whole “underdogs from the tough atlantic coast” thing always rang hollow for me. Of course some of Munster is a very tough place to live, but the same could be said of some of London. We’re not talking about Bulgaria or the Ural hinterland.

Whilst the whole Munster brand has proved useful for both the club and for the ERC and Sky, providing a focal point to drive sales; it’s maybe time for a reassessment. I’ve felt for a few years that Sky in particular are desperate to squeeze the last drips out of the reputation and history to hype any game Munster play in. Munster lost that unbeaten record years ago. The game has changed so the blood and thunder that was standard in the 90s and early 2000s when Munster was building that reputation is now illegal. The famous names that built the reputation were all top players, but many could be a bit tasty. Keith Wood, the Claw, Axel, Quinnie etc. Even more classical players like Wallace and Strings weren’t exactly angels.

That team is pretty much gone. Look at the squad biogs and there’s hardly and significant experience there. DOC & POC soldier on; some are involved in coaching, Strings is at Bath. The stadium is very different. We need a new identity for Munster rugby that is built on something other than strong regional pride and perhaps a bit of chippiness compared to the supposedly snooty types of Dublin.

So if we need to accept the past is past and use it as a foundation to build on rather than a shackle to hold us back, where next for Munster Rugby? What sort of Rugby do we want to play and how does that fit the IRFU plans?

All big questions, but I hope they’re being asked and answered by the right people. I don’t pretend to have the knowledge necessary to answer them. I’ll always watch the games I can and read the reports across as many papers as possible, but if we don’t get this sorted soon, Munster might end up on the wrong side of history. IRFU central funding means Munster probably won’t end up like some previous heavyweights such as Coventry or Bristol, but we can’t rest on the back of wins that were 8 years+ ago.

I’m all for “stand up and fight”, but I hope someone’s thinking as well.

Navalny and repeating (post) soviet mistakes

The realisation that navalny might not be as perfect as many in Europe and the States has brought a wry smile to my face today. We’ve been assuming Soviet, Russian and wider post Soviet dissidents are “like us” for years. We project our own values onto individuals with whom we share very little other than a shared dislike on an “other”.

Whether it’s Solzhenitsyn, Yeltsin, Gamsakhurdia, Karimov, or Tudjman (slightly further afield but still connected through the post Cold War dynamic) we want these men, and it’s nearly always men, to be saint like revolutionary leaders. Fight the good fight, be noble, sophisticated, mature, anti capital punishment and certainly opposed to torture. Each has disappointed their Western supporters, often for reasons that really should always have been apparent. Nationalism is a bit of a thread, as is a rampaging ego.

Put simply, Navalny has suggested that a significant level of the civil disturbances and crime in Moscow is the fault of post soviet migrant workers. He dressed it up a little saying they were being screwed over as there wasn’t a smooth running visa programme, but sounded suspiciously like a staunch Russian nationalist that doesn’t like “chornyi”.

The twitter, media and commentariat outburst today was shocked and hurt that the previously saintly Navalny might not be quite as much “one of us” as had been hoped. Others suggested that the pretty straightforward nationalism was a purely tactical attempt to appeal to a broader base and should therefore be ignored by his foreign supporters.

I make no comment about Navalny’s politics. Obviously my firm advises the Russian Federation, however due to the specifics of the contract, I do not work on that account (I lead global cap markets advisory for Gazprom amongst other things).

Fundamentally I don’t know enough to pass comment on whether he’s got a point or not. My area of post soviet specialism is in capital and commodity markets and to a far lesser extent foreign policy. I do however find the anguished gnashing of teeth amusing, especially over the old issue of nationalism.

Some commentators don’t know Baku from Bishkek or caviar from kachipuri, but others really should know better. The sort of person that understands that the professional revolutionary and Marxist insurgent was very different to the romantic “Che” of the poster or t-shirt.

Thoughts on a DC meeting

The leaders of Ketchum’s corporate practice met in DC a few weeks ago. It was the first time I’d been and the city, and my colleagues certainly left a few long-lasting impressions.

1. Ketchum is an awesome company. The group sessions created a pretty high level of debate. Whilst I remain somewhat cynical about academic discussion of PR and communications, there were some outstanding practical insights that came out of the group sessions:

& understand our clients. In PR we often focus on the tactical. Secure media coverage, get a meeting with the minister etc. We need to continue to be results focussed but at the same time, we need to be more strategic. If we really understand our clients’ businesses, we will be in a better position to advise and execute communications programmes that will have a positive effect on the bottom line.

& break down the silos. Of course we all need specialist skills, but as my boss said,”stakeholders are consumers too”. To be really valuable to our clients, we need to think as widely as possible and not simply think of our own tactical specialism.

& It’s all about storytelling. Before starting out on a campaign, we need to really home our storytelling technique, but also understand where our campaign fits in our clients’ narrative – and that of the wider industry / community that they inhabit. A great story will help us integrate into the….

& PESO model. We need to better understand and work within the “Paid / Earned / Shared / Owned” communications dynamic. This isn’t just a consumer focussed model – as already mentioned, all our targets are consumers in one way or another.

2. We’ve got some incredibly talented people. Further “proof” of Ketchum’s strength came out in the client meetings. We were set tasks on clients most of us had never met before. Particularly challenging for me, as a capital / resources / energy / emerging markets / geopolitics person – this was straightforward corporate reputation / b2b stuff. And it was great. The client was (apparently) engaged, and ideas were bouncing around like a squash ball.

Senior comms people from the US, UK, Hong Kong, Spain and Brazil meshed pretty seamlessly, attempting, perhaps even successfully applying the theory we had discussed in groups to a live client situation. Our different backgrounds were apparent, not just in our accents, but our storyline ideas and how they could be applied across various markets.

What it really demonstrated to me was the value of a global integrated agency can be to a global client. As you all probably aware, I’m a naturally cynical person. I’m not a cheerleader. I find group hugs deeply embarrassing. But this collection of talent was seriously impressive (although is say so myself) and in an hour had helped the client think about the challenge and potential solutions in a different way to before.

3. We’ve got some incredible people. None of us is just our job. What was great was getting the chance to socialize with such a diverse set of people. So many different stories, so many different jokes; from the seriously silly, so the unmentionable filthy.

In conclusion, what the trip to DC really taught me was that as long as Ketchum’s internal focus remains on human interaction and development, than we’re doing the right thing. It’s the human element that makes the difference.we’re not androids that can be programmed, and most importantly, nor are the targets we seek to influence. Even investment bankers are people as well. Therefore, Ketchum by investing in its people is adding vale our clients as well.

Explaining my hiatus

This blog is not dead. It has been reborn.

A brief explanation must suffice due to legal restrictions. Put simply someone completely misinterpreted something I wrote, which had significant personal and professional repercussions. For their own reasons, (which appeared a need to validate a theory, like Campbell and the dodgy dossier) a cat was made out to be a tiger. Perhaps a Siberian tiger.

This put me off blogging professional subjects and I’ve been so busy, there hasn’t been much else to write about.

However I’ve got over it and remain driven to write. I’m not naive enough to think this blog is anything other than a personal vanity, but i have always hoped anyone that reads it enjoys it as well.

Cheers all

Paddy

PS, if you want to know what happened, DM / email / call me