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Clare Spottiswoode talks straight about her colourful career in utilities Few people can match the CV of former gas regulator Clare Spottiswoode when it comes to the UK utilities sector. Roger Milne caught up with her. Clare Spottiswoode, the maverick former gas regulator, is in typically ebullient mood when we meet in London earlier this month. We begin by talking about Enron, because she thinks the lessons of the US energy giant's fall from grace send clear messages about regulation, and because she was involved with the company, though not on the energy side. But we start with "Enron", the play, which she's seen and, unlike many US critics, loved. "I thought it was fantastic," she says. "It was just wonderful, and the portrayal of the main protagonists was actually pretty good." Enron involvement Her brush with Enron came before the company went into meltdown. It recruited her to head its planned-to-be acquisitive global water business. She quit after less than a year, completed fazed by the way the company did business. She recollects one initial public offering in particular that Enron set at what she considered a grossly inflated price. "I could not understand why the New York banks were supporting such a price for a water company," she says. "There was no way we were ever going to make the kind of money we needed to. The price at which they were buying water businesses in South America was completely ridiculous." Did she see any fraud? She says not. "I'm quite sure that 99.9 per cent of what they did was legal. It may not have been right morally, but it was legal," she says. She remains gob-smacked that Enron was allowed to treat vehicle companies as off balance sheet provided that 3 per cent of the equity was owned by someone else. "The idea that it's okay to treat a company you own 97 per cent of as if it's not yours is kind of ludicrous," she says. She argues that the way Enron was able to make so much money through its involvement in California's energy market was the fault of the way the state's regulation was framed. "They deregulated the demand but not the supply side, which meant that you set up a situation where people like Enron could play games and make a huge amount of money. It was doomed to failure from the design point onwards," she says. Future of Banking Commission Spottiswoode is currently sitting on the Future of Banking Commission, launched in February by consumer organisation Which?. It counts heavyweight politicians from all three main parties among its members, including the Liberal Democrats' Vince Cable and former Conservative shadow home secretary David Davis as chairman. She has been critiquing the stance of the Financial Services Authority and, predictably, she is not pulling any punches. "This Enron stuff is the kind of thing you've just got to get away from. You can't have rules that are like that, you've got to go back to principles where you get people after the event if they've behaved badly. I think regulation is about making judgment calls where you don't have set proofs as though it was a court of law - where you can get people simply if they don't behave as well as they should" We talk about UK energy regulation. She is careful to say that she is watching from the sidelines, that she is deliberately trying to not second guess what is happing and what should be done. Political intervention a worry However, she is worried about a number of issues. She finds the "interventionist" language of the politicians a worry. "If government intervenes, it can shut out the key investments you need to make these things work for the private sector," she says. "I think it's very difficult to have a mixed public-private sector. You either do it publicly, and probably expensively, or you let the private sector do it - but you have to hold back. If you start to intervene, the private sector says, excuse me, we're not taking those risks. We won't do it unless you're going to guarantee me. I think it's very difficult to mix those two models because otherwise you're in danger of not getting the private sector or the public sector to do it." That said, she was impressed with the Conservative Party's recent energy policy paper, save in one respect. She emailed the authors to tell them that the plan to remove competition policy and consumer protection from Ofgem's remit and hand it to the Office of Fair Trading (OFT) was "a really bad idea". The OFT is set up to step in after the event, and it takes a long time to deliberate. "The whole point of a sector regulator is to look at things and step in before they go wrong," she says. "It can intervene on practical matters. The OFT doesn't do that. It takes years. Sector regulators should be on top of things, act quickly and always be ahead of the game." Unimpressed by Ofgem So what about Ofgem's current performance? Spottiswoode is underwhelmed. She is concerned about the dominance of the vertically integrated energy companies, which leaves so little space for new entrants. She is also bewildered that Ofgem seems to have taken so long to wake up to the looming deficit in generation capacity. "I have been waiting for years to see them start talking about whether we've got enough power stations for the future. In my day this wasn't an issue. We had excess capacity. It was designed that way. But we always knew there would come a point when you had to have something that encouraged generators to sit on spare capacity. Over time, the supply demand balance has just got too tight." She warms to her theme. The regulator is there to protect the country, she says, not to sit back. "This is not a free market. This a market set by the regulator through licence conditions and setting the capacity margin." She refuses to be drawn on whether the political imperative to keep prices down has overridden the need to invest. But she is adamant that the regulator has allowed the politicians to take the initiative. "There needs to be a dialogue with politicians," she says. "But the government shouldn't have to step in because there is a vacuum. It may be politically attractive to keep prices down, but the job of a regulator is to keep the momentum up. It [Ofgem] hasn't done the kind of things it should have done." She says its role needs reviewing. "It has become a big, bloated organisation, and it isn't concentrating on the things that matter." Carbon price We discuss the price of carbon. She likes the Conservatives' idea of changing the Climate Change Levy into a form of carbon tax paid on the carbon content of generation. She says it is "economic nonsense" to have the current multiplicity of carbon prices. But is definitely not in favour of existing nuclear capacity benefiting from such a levy. "It's not a good idea to give a gift of that size to EDF. It should only be for new capacity," she argues. Without it, or some other mechanism to give a floor for the carbon price, she is worried that no new power plants will be built. As for offshore wind, she is quite brutal. "I would not invest in offshore wind right now because I can't see the present level of subsidies surviving in the current financial climate." Gas market opening We talk about the past. What was the high point? Without question it was opening up the gas market. She pays tribute to Mark Higson, who did a big job corralling the gas industry to agree the Network Code, without which there could not have been competition. But it was touch and go whether the companies would sign up. Everything hinged on a breakfast meeting where the companies sat on tables adorned with flags and Bucks Fizz. "No-one was allowed to have any Bucks Fizz until they raised their flag," she says. "Everyone was watching everybody else to see whose flag was up and who had signed up to the code. Slowly the flags went up, one by one. We did not know when we turned up that morning if that would be the case." They did, and the rest is energy history. British Energy Talking of fraught times, she was deputy chairman of British Energy at a time when the company nearly went under and had to be rescued by the taxpayer. "I'd been watching British Energy from a distance and I'd just got the feeling that they hadn't understood what was coming their way," she says. "So I joined the board thinking they probably didn't know what was going to happen to prices, and they didn't. But I didn't see quite how bad it was going to be. It was a bit like Enron - never underestimate." She says she reluctantly agreed to be deputy chairman at the request of chief executive Robin Jeffrey, for reasons best known to him. "I agreed, but I knew that in doing so I was going to have to reform the board and face the trouble that was clearly coming, and that I would probably have to stick a knife in Robin's back, which was not a very nice thing to do," she says. "Very soon after I became deputy chairman I started those moves, but it had to be done. It was the only way for change and to avoid a reluctant government takeover." Energy Solutions Her latest foray in the energy sector is as European chairman of US company Energy Solutions, which specialises in dealing with nuclear waste, the so-called back end of the nuclear cycle. Her motivation is straightforward. "I joined the company because I don't believe you can have new nuclear without sorting out the problem of nuclear waste," she says. "I never felt British Energy had a handle on it." What she likes about Energy Solutions is the marriage of US innovation with UK knowledge and experience. She says the Nuclear Decommissioning Authority likes what the company is doing on the waste front and is more than happy with the electricity production the company is coaxing from the last two Magnox stations still generating: Oldbury and Wylfa. It seems like a job tailor-made for Spottiswoode. "It's got be a challenge. It's got to be exciting and interesting," she says. "The more people say it's impossible to do, the more I think I can find a way. I always have a clear path but not everyone understands it." Clare Spottiswoode: CV 1977-1980 Economist at HM Treasury 1980-84 Proprietor of Spottiswoode Trading, an import business 1984-90 Managing director of Spottiswoode & Spottiswoode, a computer software house 1990-93 Tutor, London Business School, and software consultant 1994-98 Director general, Ofgas 1998-99 Vice president, European water, Azurix 1999 CBE 2000-2001 Chairman, Buyenergyonline.com 2000 Economatters 2003 Bergesenff 1995-2000 Non-executive director, Booker 2000-03 Caminus 2000 Advanced Technology UK 2001-07 British Energy 2002 Tullow Oil 2002-05 Busy Bees 2004-07 Biofuels Corporation 2006-10 Policy holder advocate, Aviva 2009- European chairman, present Energy Solutions Source: Karma Ockenden © Faversham House Group Ltd 2010. News articles may be copied or forwarded
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