Posted on Monday 14 February 2011 by Ulster Business

water drop

The Utility Regulator's new chief executive Shane Lynch talks to Symon Ross about the challenges facing him in the water, electricity and gas sectors

Somebody who is dropped into a difficult situation in a new job is normally described as having had a baptism of fire. For Shane Lynch the new chief executive of the Northern Ireland Authority for Utility Regulation, it was most definitely a baptism by water. His tenure as leader of the gas, electricity and water watchdog officially began on January 4, bang in the middle of the biggest crisis ever to hit Northern Ireland Water. Arctic weather conditions had frozen pipes all over the region over the Christmas period and when the thaw came, pipes connecting homes to the aging water and sewerage infrastructure began to burst, leaving many properties without running water for more than a week. Lynch, who spent 27 years in the electricity industry including as Managing Director of Kilroot power plant before joining the Utility Regulator as Director of Electricity in 2009, says he was not fazed by the challenge. "My career has almost entirely been in industry and I have managed quite a few crises in the past. In 2003 at Kilroot we had a plant failure which shut down the entire plant and meant a large percentage of customers were disconnected," he said. "Very early in the job I learned a lot about the water industry and I have very quickly got to know all the key stakeholders. So I took a lot of positives out of having to deal with a crisis in the first few days of the job." At the time of this interview the watchdog's investigation into NI Water's poor reponse to the problem was still in progress. But while he was unable to discuss any details, the new CEO – who describes himself as being "results driven" – was clear about what he hoped it would achieve. "Clearly from a consumer perspective it was not a nice experience and our investigation aims to get to the bottom of what went wrong and to get to the truth. It is only then we can work with NI Water to put the proper remedies in place and minimise a reoccurrence," he said. Lynch is confident that with help NI Water will be a "top quartile" utility in future, likening its current situation to that of NIE when it was heavily criticised for its response to the Boxing Day storms in 1998. NIE put new processes in place and, he notes, was generally praised for its response to more recent weather-related disruptions in February 2010. The Regulator adds the caveat that there will always be conflict between the competing objectives of having infrastructure that would stand up to any conditions and the cost to consumers of that. "It is not economic to design a system, either a water network or an electricity network, that is 100% shock proof," he said. The role of the Utility Regulator sits between policy makers and industry, with a responsibility to ensure the lowest possible prices, security of supply, and sustainable sources. Lynch says he is not concerned whether this objective is achieved via competition or regulation. One of his primary goals is to bring consumer engagement to the table earlier in the decision-making process, rather than receiving complaints when it is too late. "Consumers will engage if prices go up, or their lights go out, or their water is disconnected. I know people have busy lives and there's only so much engagement we can expect. But when the big decisions are being made on investment, which will ultimately determine performance of the network and cost to them at a later date, I would rather have the debate at that point," the regulator said. "It seems obvious to me. If somebody was spending my money I think I would like to have a say in it." This engagement will be particularly relevant as the industry strives to meet the goals for renewable energy set out in the government's Strategic Energy Framework. The SEF has set a target for 40% of electricity to be generated from renewables, with a heavy reliance on wind that could require an estimated £1bn investment in the network. Lynch believes the target is achievable but also that it should be subject to intense scrutiny and not pursued "at any cost" given the SEF also highlighted the high level of fuel poverty in Northern Ireland. "Before I would approve network investment of £1bn or even £100m, I would want to ask the investor what are we going to get for our money and will you guarantee it. Then I think it's important we engage with consumers to say we are planning to spend £100m of your money and here's what it's going to deliver, what do you think," he explains. "We are an economic regulator, so that means we focus on the economics and their impact on the consumer. In industry you always have to answer to shareholders. Sometimes they will approve your ideas for investment and sometimes they say no because they don't see value in it. In Northern Ireland I have 1.7 million shareholders." Lynch also believes Northern Ireland should focus on "localised solutions" rather than copying the UK, and should try to facilitate as many renewable sources as possible, including biomass and energy-from-waste generation. "At the moment we have about 360MW of wind. To get to 40% we'd have to build another 1200MW of wind generation and we're hearing estimates of £1bn on the network to capture that. But 1200MW is equivalent to 400MW of biomass so in theory if we were to build a 400MW biomass plant we'd get the same result. 400MW of biomass is unrealistic but 150MW is very doable and that would mean a lot less network investment."

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