7 top trends in energy and utility compliance
Amidst a highly regulated environment, where ethics, governance, and risk management are top priorities, energy and utility organizations are under increased scrutiny.
These organizations are shouldering the responsibility of complying with fluctuating global, federal, state, regional and local regulations; staying on top of standards of conduct; and maintaining endless documents for reporting and auditing. Looking ahead, experts indicate that corporate risk management and compliance initiatives will get more complicated.
Complí, a provider of business process improvement software with an emphasis on compliance recently polled cross-industry experts to weigh in on the top concerns facing energy and utility organizations in 2014.
Experts weigh in on top compliance concerns
Experts cite meeting regulatory compliance standards, ethics, governance, and global and environment stewardship as the biggest issues.
- David Childers, CEO of Complí
“Energy and utility enterprises face daily challenges and need to understand that effective compliance management is a key component for success. Beginning with building a ‘Culture of Compliance’ and focusing close attention at every level within the organization will assist in the management of safety risks, incidents and the onslaught of regulatory requirements. Documentation, reporting standardization and technological efficiencies are critical for creating that culture and will dramatically reduce organizational costs."
- Jerome Farquharson CISSP, CRISC, director, Compliance & Critical Infrastructure ProtectionCommittee, formed to help the North American Electric Reliability Corp. (NERC)
"The cyber security compliance requirements within the electric sector are going through a huge evolution process with the recent approval of the Version 5 of the Critical Infrastructure Protection Standard by FERC. With these most recent changes, compliance activities are now becoming more security focused, which moves the industry closer to engineering critical systems with greater security controls and advance protection mechanisms. With the maturity of the standards, compliance and security becomes a subset of each other creating a more resilient and robust critical infrastructure."
- Tom Fox, founder and principal, Tom Fox Law
“The good news for U.S. energy and utility companies is that if they have a robust anti-corruption compliance program and do compliance, they have the best chance of avoiding prosecution. But it takes a commitment from the top down, through the ranks. Regulators know the difference between companies that simply talk compliance from those that do compliance. The three most important things are for organizations to Document, Document, Document all of the steps in their anti-corruption compliance programs.”
- Scott Lane, executive chairman, The Red Flag Group
"Global energy and utility companies that already maintain a strong standard of ethics and integrity working in Africa and Iraq have continual interest in managing and investing in compliance-related issues. The issues we see most are predominately FCPA-related and have to do with the engagement of third parties and local partners in transactions."
- Jim Larson, principal consultant, Environmental and Occupational Risk Management (EORM)
"More than ever, organizations are being evaluated on the performance of their supply chain. Establishing standards of conduct and monitoring the compliance and improvement of their supply chain will help further demonstrate commitment to corporate citizenship."
- Michael Rasmussen, chief GRC pundit and principal analyst, GRC 20/20
“One of the critical compliance challenges facing energy and utility companies is simply change. The dynamic and expanding nature of obligations in this vertical is daunting. However, keeping abreast of the latest regulatory requirements is not enough as the business itself is changing in employees, technology, processes, and relationships. Managing compliance in utilities and energy is about managing both regulatory and business change and keeping these changes in sync. A compliance officer may think the organization is fully compliant by staying on top of the latest obligations but fail to realize the non-compliance because an element of the business changed they were unaware of."
- Carole S. Switzer, president, Open Compliance & Ethics Group(OCEG)
“Look for more collective action on water stewardship and accounting in the months and years to come. At the World Economic Forum in 2013, water crises were named among the top four global risks. That concern has only gotten stronger, especially in the utility and energy sector.
Whether we are looking at climate-change related droughts or floods, impacts of fracking on local water supplies, or supply chain disruption, it's clear there is a need for a more holistic and
forward-planning approach to water risk.”
Ofwat allows retailers to raise prices from April
Retailers can recover a portion of excess bad debt by temporarily increasing prices from April 2022, according to an Ofwat statement.
The regulator confirmed its view that levels of bad debt costs across the business retail market are exceeding 2% of non-household revenue, thereby allowing "a temporary increase" in the maximum prices. Adjustments to price caps will apply for a minimum of two years to reduce the step changes in price that customers might experience.
Measures introduced since March 2020 to contain the spread of Covid-19 could lead to retailers facing higher levels of customer bad debt. Retailers’ abilities to respond to this are expected to be constrained by Ofwat strengthening protections for non-household customers during Covid-19 and the presence of price caps.
In April last year, Ofwat committed to provide additional regulatory protection if bad debt costs across the market exceeded 2% of non-household revenue.
Georgina Mills, Business Retail Market Director at Ofwat said: “These decisions aim to protect the interests of non-household customers in the short and longer term, including from the risk of systemic Retailer failure as the business retail market continues to feel the impacts of COVID-19. By implementing market-wide adjustments to price caps, we aim to minimise any additional costs for customers in the shorter term by promoting efficiency and supporting competition.”
There are also three areas where Ofwat has not reached definitive conclusions and is seeking further evidence and views from stakeholders:
- Pooling excess bad debt costs – Ofwat proposes that the recovery of excess bad debt costs is pooled across all non-household customers, via a uniform uplift to price caps.
- Keeping open the option of not pursuing a true up – For example if outturn bad debt costs are not materially higher than the 2% threshold.
- Undertaking the true up – If a 'true up' is required, Ofwat has set out how it expects this to work in practice.
Further consultation on the proposed adjustments to REC price caps can be expected by December.
"While it’s great that regulators are helping the industry deal with bad debt in the wake of the pandemic, raising prices only treats the symptoms. Instead, water companies should head upstream, using customer data to identify and rectify the causes of bad debt, stop it at source and help prevent it from occurring in the first place," she said.
"While recouping costs is a must, water companies shouldn’t just rely on the regulator. Data can help companies segment customers, identify and assist customers that are struggling financially, avoiding penalising the entire customer in tackling the cause of the issue."
United Utilities picks up pipeline award
A race-against-time plumbing job to connect four huge water pipes into the large Haweswater Aqueduct in Cumbria saw United Utilities awarded Utility Project of the Year by Pipeline Industries Guild.
The Hallbank project, near Kendal, was completed within a tight eight-day deadline, in a storm and during the second COVID lockdown last November – and with three hours to spare. Principal construction manager John Dawson said the project helped boost the resilience of water supplies across the North West.
“I think what made us stand out was the scale, the use of future technology and the fact that we were really just one team, working collaboratively for a common goal," he said.
Camus Energy secures $16m funding
Camus Energy, which provides advanced grid management technology, has secured $16 million in a Series A round, led by Park West Asset Management and joined by Congruent Ventures, Wave Capital and other investors, including an investor-owned utility. Camus will leverage the operating capital to expand its grid management software platform to meet growing demand from utilities across North America.
As local utilities look to save money and increase their use of clean energy by tapping into low-cost and low-carbon local resources, Camus' grid management platform provides connectivity between the utility's operations team, its grid-connected equipment and customer devices.