“If we’ve got councils coming to us with their plans for net zero and we say no because the network is not fit for purpose then we have failed.”
Basil Scarsella, chief executive, UKPN
“If we’ve got councils coming to us with their plans for net zero and we say no because the network is not fit for purpose then we have failed.”
Basil Scarsella, chief executive, UKPN
For a man with a reputation as a safe pair of hands, it is fitting that Basil Scarsella began his career as a goalkeeper.
While the UK Power Networks (UKPN) boss stresses that football was only ever a hobby (“non-paying and in case you’re asking - not even any brown envelopes” he laughs), he became an influential figure in the game in his native Australia as player and administrator but also internationally through roles at FIFA.
In fact it is almost 20 years to the day since his dramatic departure from the footballing world – literally walking out of a FIFA executive meeting after then president Sepp Blatter u-turned on a pledge to guarantee the Oceania teams an automatic place at World Cup finals.
Reflecting back on the controversy over breakfast with Utility Week in London’s already bustling Borough Market, Scarsella says: “I remember walking out saying you guys are more interested in politics than promoting the game.”
It’s a lesson he took into the day job in energy networks, which was already flourishing at the time of his self-imposed exile from the footballing world. Throughout our interview Scarsella avoids overt criticism of government and the regulator - despite my best efforts to draw him into it.-
Witness his response to a question about whether Labour’s pledge for a net-zero power grid by 2030 is realistic.
“It’s ... feasible… but the biggest stumbling block is probably the planning rules, together with the availability of critical materials in a global race to build transmission.
“If you assume the next election is going to be late 2024 – you’re essentially five years out.”
So, that’s a no then? Scarsella simply smiles an “I wasn’t born yesterday” grin back at me and changes the subject.
As the chief executive of London’s electricity distribution network, headlines are the last thing Scarsella wants. In fact, it takes some arm-twisting to agree to a profile interview at all (“it’s about UK Power Networks, it’s not about me”) which is perhaps unsurprising given electricity distribution is by far the least controversial part of the utilities sector at the moment. While water companies plumb new depths of unpopularity, electricity transmission is under pressure over the slow pace of connections and gas faces up to an existential question about the future role of hydrogen, electricity distribution remains where Scarsella wants it – behind the scenes.
But for how long?
This is a question Scarsella needs no prompting to answer. “We need to be conscious that the problem that now sits at high voltage may come down to low voltage. Our aim is not to be a blocker for the community to transition to net zero.”
Basil Scarsella CV
1994 – Joins the Electricity Trust of Australia tasked with splitting generation, transmission, distribution and retail divisions
1999 – After the final part of the business, distribution, is sold to CKI, becomes chief executive of the business
2005 – After CKI acquires Northern Gas Networks, becomes CEO as well as leading for CKI on searching out other potential investments in the UK
2010 – CKI takes over three EDF networks in London, the South East and East of England, which are turned into UK Power Networks with Scarsella as CEO
“We need to be conscious that the problem that now sits at high voltage may come down to low voltage”
As the most high-profile of the distribution network operators (DNOs), Scarsella knows he would be first in line for criticism if UKPN fails in this task. He’s crystal clear about what keeps him up at night – “the lights going out”.
In his bid to protect his beauty sleep, Scarsella can reflect on lessons learnt during much more turbulent times for the company.
“The reputation was the issue,” Scarsella says of the three EDF Networks he acquired for CKI to turn into UK Power Networks.
He references an early meeting with then Ofgem chief executive Alistair Buchanan, who described the networks as “an embarrassment”. The high profile of performance problems in the capital had undermined trust in the network and Scarsella was well aware it would not be an overnight fix.
Asked about his approach he says: “Firstly, you address the performance. Secondly, you put a face to the organisation – from day one I’ve been accountable for everything UKPN does. Then you do what you say you’re going to do and you deliver."
He adds: “I didn’t bring a lot of people in straight away. My logic was, let’s have a look at the team that’s there for the first six months, be clear about the direction, be clear on what was expected and let the management get on with it and deliver.”
After six months Scarsella promoted several existing team members, including stalwarts Barry Hatton and Patrick Clarke who are still part of the management team now. His major external appointment was to bring in Ben Wilson (now at National Grid) from Deutsche Bank as director of strategy and regulation and chief financial officer.
Scarsella is adamant that for utilities it is vital to nurture that experience and is clearly proud of the long tenure of his team. The evening before we meet had been spent at UKPN’s “40-plus club”, which recognises employees that have served the company for four decades. “It’s the thing I look forward to most”, he says, noting that one worker has now notched up 60 years.
He explains: “I really respect that experience and when I joined my aim was to find a way to recognise and reward that properly and give them a reason to deliver the performance we were looking for. I try to be honest about it - my remuneration is based on achieving the same targets as the linesman or the joiner.
“The record is there for everyone to see.”
That record includes (for FY 21/22) a customer satisfaction score of 93%, just two “lost time incidents” (injuries to workers that lead to a delay of one or more days) and outperformance on supply interruptions. Turnover in the year grew from £1.76 billion to £1.84 billion, while EBITDA also edged up slightly – though profits almost halved due to tax changes and higher financing costs. As of March 2022 the company had a regulatory asset value of just over £7 billion.
UKPN also regularly features on the best companies to work for list and last year topped the ranking in the UKL Customer Service Index – beating the likes of Tesco and John Lewis.
Scarsella stresses that these achievements stem from a relentless focus on the basics.
He says: “On a Friday afternoon, we have the senior managers online to review performance over the week in four areas. First, and always safety. Second, the performance of the network - customer minutes off. Thirdly, customer service. And, fourthly, costs.
“Every week they are in that order of priority. It doesn’t work if it’s in any order.”
While UKPN’s turnaround has been a success, Scarsella has long been clear that life for DNOs is about to get significantly more complicated, with electricity demand set to double by 2050.
Discussing this challenge, he repeatedly returns to his mantra that DNOs cannot be a blocker to net zero and the need to ensure the connections process is fit for purpose – at both distribution and transmission level.
“We deal with about 130 different local authorities across our three networks. If we’ve got councils coming to us with their plans for net zero and we say no because the network is not fit for purpose then we have failed. It’s as simple as that.”
While he is at pains to stress that a distribution level the pace of connections is in “good shape”, he accepts that the backlog in the queue to connect to the transmission grid is also UKPN’s problem.
“It’s a sector problem. Distribution, transmission and Ofgem have to resolve this together. It’s a critical issue.
“We need to make sure there are clear communications and Grid knows exactly what’s happening at distribution level so they can plan the transmission network.”
He adds: “While UKPN is comfortable with renewables the biggest challenge for networks is actually going to be connecting electric vehicles (EVs) and heat pumps.
“We’re dealing with very uncertain demand but we know that when we get to two, three million EVs connected to the network it completely changes the way we look at distribution. Customers will want the flexibility to charge when they want – and we can’t stand in the way of that.”
This is exactly why some commentators have raised concerns over whether Ofgem has been ambitious enough in its projections of low-carbon technology uptake in the RIIO-ED2 price control period from 2023-2028.
UKPN was one of the more reserved of the DNOs in requesting funds to reinforce the network with Scarsella noting that uptake of EVs and heat pumps in ED1 was lower than expected.
But with Ofgem set to get an explicit net-zero mandate and its chief executive now much more willing to talk up anticipatory investment, does ED2 risk looking worryingly unambitious just months after it launched.
Scarsella shoots me down: “We put up an ambitious plan and that was recognised by Ofgem and the various review bodies. But the key is that this plan is based on uncertain demand. We don’t know if we’re going to have 500,000 EVs or 2 million come on line. Will there be 100,000 heat pumps or 600,000? The honest answer is we don’t know.
“So, our plan provides for adequate ex-ante allowance plus, depending on demand, we have got uncertainty mechanisms, which can give us the funds we need to invest if demand is greater than we expect. That’s a good system.”
He adds: “People talk about strategic investment at distribution level but all of our investment is strategic. What else its it? It’s all anticipatory expenditure, because if it wasn't, the lights would go out.”
UKPN is not for sale
To deliver this kind of investment in the network will require steady investment and Scarsella has a long association with one of the largest investors in UK utilities – the Hong Kong-based CKI. He says the group has a continuing appetite to invest in the UK and is open to opportunities.
UKPN itself was a target for takeover last year but Macquarie and KKR’s bid was eventually rejected as not valuing the company appropriately. Asked if he expects further appraoches, Scarsella says: “There’s nothing I’m aware of going on at the moment but you can never be sure what happens in the future. Certainly UKPN is not for sale.”
Given increasing scrutiny over Chinese investment in the UK and the state’s growing influence in Hong Kong, does he worry that CKI’s ownership of UKPN (and other utilities) could become a problem.
“I hope it doesn’t,” he sighs. “I’ve been with the company for 23 years and I know they are long term investors, in countries like the UK, Australia, Canada, and to a lesser degree, Europe. And the attraction of those markets is stable political and economic environment and consistent and predictable regulatory regime.”
And what of the future for Scarsella himself? Three years ago he very nearly joined Thames Water as chief executive before u-turning for personal reasons. He declines to comment on the travails that company now finds itself embroiled in but his name has inevitably come up in speculation about who could replace Sarah Bentley.
But having led UKPN for more than a decade and now approaching his 68th birthday, is Scarsella instead thinking of hanging up his hard hat?
If he does, Suleman Alli, the group’s director of finance, regulation, strategy and technology, is seen as the most likely candidate to be the next CEO. However, Scarsella's only comment on a succession plan is: “There are good people internally at UKPN and also good people other investments that CKI has across the world.”
In any case, Scarsella insist he has no plans to retire yet: “I still enjoy the challenge. And I firmly believe this is the most exciting time to be involved in the electricity industry. Why would I want to miss any of that?”
Harking back to his footballing days, Scarsella is clearly keen for extra time. Just as long as it doesn’t end up with penalties.
“I still enjoy the challenge. And I firmly believe this is the most exciting time to be involved in the electricity industry.”
Basil Scarsella is one of the speakers at Utility Week Forum on 4-5 October in London. Find out more here.
