:00:22. > :00:29.Now, it is time for Leading Tried shedding light on the future
:00:29. > :00:36.of energy and you get a lot of heat. It's a rapid rise in the Bills, 47%
:00:36. > :00:41.increase over five years and combined bills has risen to more
:00:41. > :00:48.than �1,400 every year, another reason to replace ageing power
:00:48. > :00:58.stations, but what we eat? Wind, Tobias, gas? Either controversial
:00:58. > :01:01.
:01:01. > :01:05.70 years ago, hydropower was the new power changing the mat up the
:01:05. > :01:10.Highlands forever with a huge achievement bringing power to the
:01:10. > :01:14.remote places for the first time. The Government agency that Bill
:01:14. > :01:19.this is privatised and has expanded massively be on this but in
:01:19. > :01:28.Scotland, it's still known as Scottish Hydro. These new projects
:01:28. > :01:36.planned along with wind declines and tidal energy. This is sudden a
:01:36. > :01:41.Electric. Along with Scottish Hydro it fans SSE. They dominate the
:01:41. > :01:49.British energy supply. It's about the 30th biggest in Britain with
:01:49. > :01:54.over 9 million accounts. It made a profit of �1.3 billion last year.
:01:54. > :02:01.SSE faces strong criticism over prices and the treatment of
:02:01. > :02:08.customers. His company has received a record fine for mis-selling, for
:02:08. > :02:12.ever rising bills and threats facing future energy supplies. I
:02:12. > :02:19.met Ian Marchant at the company headquarters to talk about the hard
:02:19. > :02:25.choices the country faces. After that bruising fine, we asked about
:02:25. > :02:30.whether he is popular or loved by the customers. I do feel loved and
:02:30. > :02:36.supported by the staff, in a sense, the more immediate reaction you get
:02:36. > :02:43.but obviously, over the last few weeks has not been good. Some
:02:43. > :02:49.customers clearly don't like us at all. They have either been let down
:02:49. > :02:53.all feel they've been let down and for that, I'm very sorry. The
:02:53. > :02:58.larger reaction from the customers has been, it's undermined
:02:58. > :03:03.confidence, you need to rebuild. What were you do about that?
:03:03. > :03:08.has gone wrong with the relationship between the parent
:03:08. > :03:12.companies and the customers? You are now more unpopular than the
:03:12. > :03:21.banks as an industry, not you personally. I'm not sure that's
:03:21. > :03:26.quite true. In a sense, there mis- selling that we are accused of,
:03:26. > :03:32.that getting the price in slightly wrong. We did provide the energy.
:03:32. > :03:38.Every day, 24 hours each day to all of the customers, and we still do
:03:38. > :03:45.that. Some of the banks that they did, what were they providing? Was
:03:45. > :03:50.there any value to the customer? Insurance that was not paid out.
:03:50. > :03:55.Actually, we may be in the eye of the storm. I actually think they
:03:55. > :04:02.are deep-rooted causes are less in our industry. We did get things
:04:02. > :04:10.wrong. I am clear, the industry got things wrong. SSE got things wrong.
:04:10. > :04:13.Believe you me, I spent a long time agonising over that, some of the
:04:13. > :04:19.detail and some of the philosophical things. Why did this
:04:19. > :04:23.happen and why didn't we deal with this earlier? From the chief
:04:23. > :04:28.executive point of view, that's a more interesting debate about the
:04:28. > :04:35.terms and conditions to somebody. Why did we create that culture?
:04:35. > :04:40.Let's deal with that, specifically, SSE was fighting a �10 million fine
:04:40. > :04:46.for mis-selling to try to get the customers to switch over. They
:04:46. > :04:56.pinned the blame on senior management. It was a woeful failure
:04:56. > :04:56.
:04:57. > :05:02.ISS the management.-SSE management. Until recently, not just yesterday,
:05:02. > :05:07.why was it allowed to happen? have been thinking a lot about this,
:05:07. > :05:12.the distillation of thought. We had a fragile business model. We were
:05:12. > :05:19.selling on the basis of price. There was a very complex tariff
:05:19. > :05:24.arrangement. We needed to compare 60 tariffs tour over 300 in the
:05:24. > :05:28.marketplace. Think of the possible permutations. It was difficult. It
:05:28. > :05:35.was fragile because, the customer did not know what the past
:05:35. > :05:41.consumption was. At the price and the volume was unknown. Energy
:05:41. > :05:48.patterns change. If the past may not be right, the future was
:05:48. > :05:53.different. The prices are going up. While we may say you will save
:05:53. > :06:00.money, what we actually meant was you will pay less than you would
:06:00. > :06:09.have otherwise done. It's a fragile discussion. The other thing is,
:06:09. > :06:14.it's seven or 800 people out there selling at any one point in time.
:06:14. > :06:20.They are effectively, largely unsupervised. You have the
:06:20. > :06:25.supervises visiting periodically to check. You have created a fragile
:06:25. > :06:30.environment where the selling is happening. It's not like in a store
:06:30. > :06:35.or online way you can put rigorous controls and detailed supervision.
:06:35. > :06:40.That's my first point, a fragile business model. We underestimated
:06:40. > :06:46.the scale of the changes of the environment. It was clear, clear
:06:46. > :06:52.with hindsight, in 2009, a much higher standard was expected of us.
:06:52. > :06:57.We recognise the higher standard, a lot of work went on to readers on
:06:57. > :07:01.the processes but we pitched it wrong, we got it wrong. At the same
:07:01. > :07:05.time there was a lot more scrutiny of the business, driven by the
:07:05. > :07:09.banks but applied to the energy companies, the standard and
:07:09. > :07:17.scrutiny we were exposed towards greater than we had assumed. The
:07:17. > :07:23.third thing, we had an inadequate compliance ratio. Too much trust
:07:23. > :07:32.and not enough for a vacation. We have learnt that lesson part-way.
:07:32. > :07:37.Trusts in your own employees? everything OK? Yes. Are you
:07:37. > :07:41.following the rules? Yes, that was happening. What was not happening
:07:41. > :07:48.was that other thing about verifying and checking about what
:07:48. > :07:57.we think was happening, three levels down in the organisation.
:07:57. > :08:01.that why the managers were centralised to get the results at?
:08:01. > :08:09.Effectively, there was not enough their vacation from senior
:08:09. > :08:15.management, not involved in a direct process. There was a
:08:15. > :08:21.weakness there. We were trusting, and you're absolutely right, within
:08:21. > :08:27.the business unit, the compliance team was too close to the people
:08:27. > :08:33.making the sales. We were not or did not have the attention clear
:08:33. > :08:38.enough. Too much trust and not enough attention. We learnt that
:08:38. > :08:46.bitter lesson a hard way. That applies to many business failures.
:08:46. > :08:50.Before thing, there were some warning signs. Not at 2004-2006. We
:08:50. > :08:57.had warning signs. Why didn't we pay attention to that? He took
:08:57. > :09:02.about a fragile thing between the staff and customers. The customers
:09:02. > :09:06.were being lied to about the prices from rivals and about the bills
:09:06. > :09:14.coming down. How do you feel personally, after being so
:09:14. > :09:19.committed to the company, to have this happen? I think, the examples
:09:19. > :09:25.of lying there were few and far between. I think a more common
:09:25. > :09:30.thing that was happening was misunderstanding either
:09:30. > :09:34.deliberately or accidental. However, I feel deeply ashamed. Become meat
:09:34. > :09:39.I was involved with and proud to be the leader, it was involved in
:09:39. > :09:45.things that it should not have been. Absolutely, it's something I will
:09:45. > :09:51.regret for the rest of my career. The at's talk about profits.
:09:51. > :09:58.Another area of the reputation will damage. It's for the industry as a
:09:58. > :10:06.whole. It clearly pleases the shareholders to get bigger prices.
:10:06. > :10:14.Reinvesting a lot of investment. �1.3 billion was very tough. It
:10:14. > :10:18.looks obscenely large. I understand why it looks have seen. We are big
:10:18. > :10:24.company, the second largest generator of power and the third
:10:24. > :10:33.largest network. The second largest supplier of energy, we are in gas
:10:33. > :10:38.production. It's a big company. From the profits, roughly 45% comes
:10:38. > :10:44.from the network business. The prices are regulated. Absolutely
:10:44. > :10:50.explicit. The reason the profits was to remunerate the investors.
:10:50. > :10:57.That happens within the UK. We employed people within the UK to do
:10:58. > :11:04.that. It's about 45% of the products. Then there's another 35%
:11:04. > :11:09.to run those generators. Then we have about 20% of the profits from
:11:09. > :11:15.selling energy and energy related services. Only about 20%. The
:11:15. > :11:24.profit margin, the difference between that cost and burnings was
:11:24. > :11:30.about 3.5%. Not at any retailer. They have about 5% or 7%. You have
:11:30. > :11:37.capital, a risk, I think our profits stand up as a reasonable
:11:37. > :11:43.degree of scrutiny. To look at it in another way last week you put up
:11:43. > :11:48.the prices by 9%. The half-year profit was up. They are going great
:11:48. > :11:55.but personally, with your salary and bonuses, how do you think that
:11:55. > :12:03.looks to the customer? The property increase over half he was an
:12:03. > :12:07.unfortunate comparison. When you put the prices up, that sheet money
:12:07. > :12:14.between the first half of the year and the second. The expectation
:12:14. > :12:22.that over the Ford ute is about 5% increase, that's a better measure
:12:22. > :12:27.for the half yearly increase. In terms of renumeration, what's
:12:27. > :12:33.happened in corporate society is that renumeration levels have
:12:33. > :12:43.become higher. This philosophical and historical reasons why this is
:12:43. > :12:44.
:12:44. > :12:51.the case. In a sense, I am a beneficiary of that. I am actually,
:12:51. > :12:56.you may not believe me, but for the size of my company, I am, quote,
:12:56. > :13:03.underpaid, if you believe that. going rate for cheap executives is
:13:03. > :13:11.too high? Is that what you're saying? Yes, and we are moderate
:13:11. > :13:21.compared to our Piers. That's a philosophical thing and that leads
:13:21. > :13:22.
:13:22. > :13:30.to a theme that is driven too much by the Americans. Consultants bute
:13:30. > :13:35.comparisons. Our policy is to pay less than average. I am not aware
:13:35. > :13:41.of any other company with that policy and by definition, 50 per
:13:41. > :13:45.said the company should be. It's a real challenge how up
:13:46. > :13:53.simultaneously, with one view, I am underpaid and Another View says I
:13:53. > :14:00.am overpaid. That's a personal struggle that I go through. But in
:14:00. > :14:03.up the industry generally, not just SSE, they look at the market's
:14:03. > :14:08.concluding that competition is being stifled by poor worse
:14:08. > :14:14.behaviour, tariffs, lack of transparency, many thought it was a
:14:14. > :14:22.lot of progress but not fast enough progress. How does the industry win
:14:22. > :14:30.back the trust? We need to rebuild confidence. Any organisation going
:14:30. > :14:36.through turmoil, a bank, energy, media, they know that it's not a
:14:36. > :14:40.quick task. The key point is that you need to get the reality right
:14:40. > :14:47.first before you get their PR right. I won't come and say we will do
:14:47. > :14:53.this or that because that's PR. We need to tell the customers about
:14:53. > :14:56.what's happening and then tell them, by the way, let's tell people about
:14:56. > :15:05.it. We have started to do things and we need to carry that through
:15:05. > :15:15.and it will take a couple of years, I think, to get back to where we
:15:15. > :15:28.
:15:29. > :15:33.way the markets operate, one of the things the regulator found was that
:15:33. > :15:42.prices soar. They is simply not true. Are you saying that never
:15:42. > :15:48.happened? I can give you an example. We put prices up as you mentioned
:15:48. > :15:53.earlier at last year. To cover future winter gas prices. They
:15:53. > :16:01.turned out even higher than we had assumed. The gas prices for the
:16:01. > :16:07.winter we have come out of were the highest ever. We have not put
:16:07. > :16:13.prices up. We have borne that. There are lots and lots of examples
:16:13. > :16:21.of price spikes. We saw very high prices in the wholesale market it
:16:21. > :16:26.the end of March, because it was pretty cold. Most of the guests in
:16:26. > :16:31.Europe had been used and we saw very high prices. There are
:16:31. > :16:37.examples where it is not true. I can prove the opposite. What some
:16:37. > :16:47.of the superficial analysis ignores is the norm energy cost. Half of
:16:47. > :16:48.
:16:48. > :16:56.your electricity or gas and energy, half of none energy, is the network
:16:57. > :17:02.charges. They are going up, the debate is at what rate. And all the
:17:02. > :17:08.non- energy costs, imposed by politics full regulation, support
:17:08. > :17:17.for renewable energy or energy efficiency. They are all good but
:17:17. > :17:22.those costs only go one way. That 50% is just increasing every year.
:17:22. > :17:27.If you take that into account, that is the principal reason why prices
:17:27. > :17:32.have gone up. You have been very forthright about one part of that,
:17:32. > :17:38.one reason for the rising bills, the Social tariffs to subsidise
:17:38. > :17:44.poorer customers and green energy targets. A lot of stop getting
:17:44. > :17:50.loaded on you by government. This is an industry which is used as
:17:50. > :17:56.target practice by politicians and the regulator. Has the eat industry
:17:56. > :18:02.been a patsy in allowing this to happen? Some of these costs are OK.
:18:02. > :18:10.And the electors say we should be at a cost of renewable energy. It
:18:10. > :18:15.should be some of the cost of energy efficiency. There are some
:18:15. > :18:24.which I think are more social issues, the tax benefits system
:18:24. > :18:33.should help. On fuel poverty and some of the energy efficiency.
:18:34. > :18:38.The other philosophical point is that there is an accepted political,
:18:39. > :18:44.large political consensus across parties that we need to de
:18:44. > :18:49.carbonised the economy. I agree with that. What it means in the
:18:49. > :18:53.first 15 years of that path, the electricity bill is a
:18:53. > :19:01.disproportionate cost. That is the cheapest place for society to pay
:19:01. > :19:09.it. You are happier, that I green up ultras tea then drive your car
:19:09. > :19:13.less. There has not been the honesty to say the cost of society
:19:13. > :19:17.decolonisation is low but it comes here initially. There are two
:19:17. > :19:22.reasons I think philosophically why it is a problem. Your point about
:19:22. > :19:28.the industry is being a patsy, because our house was not in order,
:19:28. > :19:34.we have struggled to resist. Looked ING at the energy market more
:19:34. > :19:36.widely, you see there is a risk of the lights going out. The
:19:37. > :19:46.government is underestimating the scale of the crunch facing the
:19:47. > :19:47.
:19:47. > :19:55.country? What is the problem. are at an interesting point in the
:19:55. > :20:00.cycle of the electricity generation market. We have too much, too much
:20:00. > :20:06.generation on the system. Until recently. There were a number of
:20:06. > :20:12.reasons for that. The bigger surprise was the economic recession.
:20:12. > :20:20.Electricity vote has gone down four years in a row. This has never done
:20:20. > :20:24.that since records began. Normally it goes up by 0.1 2.5% a year. We
:20:24. > :20:30.have more generation then we need. The generation we have is not
:20:30. > :20:35.making any money. You have got that and then you have some
:20:35. > :20:42.environmentally regulations coming from Brussels that go back to
:20:42. > :20:48.probably the late 90s, was its formulation which takes a lot of
:20:48. > :20:54.generation of the system, not based on economics or need but the basis
:20:54. > :21:00.of environmentally Kermit chewed. It has started to happen. We have
:21:00. > :21:06.seen power stations are all shut in a few weeks. We have plants
:21:06. > :21:11.shutting because it is not making money because it has to, we have
:21:11. > :21:18.too much generation. And you have the third of factor, building new
:21:18. > :21:25.is not easy because financial markets are tight. There's not much
:21:25. > :21:31.liquidity. Government have said they will introduce new policy. But
:21:31. > :21:36.it has not actually introduced new policy. To quote Donald runs felt,
:21:36. > :21:45.they have created a Nalin unknown. They have said they will intervene
:21:45. > :21:49.but you have to wait. So you wait. Who would build a gas plant today
:21:49. > :21:54.on the basis that the market will recover in the government will give
:21:54. > :22:01.its policy right? A board has to say let's wait until one of those
:22:01. > :22:07.has happened. Today, none of these has happened. Although we said
:22:07. > :22:11.government are underestimating the scale of the problem, we also mean
:22:11. > :22:18.the government tardiness is making that problem worse. The government
:22:18. > :22:28.has said we do not need new capacity for 2018. My answer is, I
:22:28. > :22:32.
:22:32. > :22:36.hope you are right. SSE has invested heavily in renewables. Can
:22:36. > :22:45.renewables take enough of a load off what is required for the
:22:45. > :22:50.future? I have always believed renewables could do more than one
:22:50. > :22:57.end of the spectrum. It is not the only answer. If you take
:22:57. > :23:04.electricity, renewables for market the size of the UK, the 80 to 40%
:23:04. > :23:14.from renewables is achievable with the technology of today. We will
:23:14. > :23:14.
:23:14. > :23:18.need other solutions. One of those is nuclear. Can I come on to
:23:18. > :23:23.nuclear because there is one technology we ignore which is
:23:23. > :23:28.demand management. Renewables are variable and intermittent. Demand
:23:28. > :23:34.is variable and intermittent if you get demands like management demands
:23:34. > :23:39.like flexibility you can get more renewables on the system. However,
:23:40. > :23:44.you will need a combination of clean and cleaner fossil fuels we
:23:44. > :23:48.carbon storage comes in and nuclear. My objections to nuclear at the
:23:48. > :23:53.moment are it is the wrong technology at the wrong price for
:23:53. > :24:00.the wrong company. But we should wait. We can afford is a country to
:24:00. > :24:07.wait. There's a lot of interesting technology development in nuclear
:24:07. > :24:10.going on, especially in Asia and in the US with they are looking at
:24:10. > :24:18.generation for technology, small reactors. Easier and quicker to
:24:18. > :24:27.build. I think the UK we will wait. We should invest in gas, renewables,
:24:27. > :24:33.demand site management and that gets us to 2025. 2025, you are not
:24:33. > :24:40.far into your 50s, bags of energy, what his next? I need some time to
:24:40. > :24:46.decompress and recover. It has been a great 20s. Really enjoyed the 11
:24:46. > :24:51.years. I need some time to myself in time for the family. Later this
:24:52. > :24:57.year, will question comes into play. I do not want to do another big
:24:58. > :25:05.executive job. If I did, why do I not do the best one there is, the
:25:05. > :25:12.one I have. 01 to-do a variety of different things. I am on the board
:25:12. > :25:17.of the oil services company. That will carry on. I'm on the board of
:25:17. > :25:24.the Maggie's cancer centres which is a great success story starting
:25:24. > :25:30.in Scotland with 50 centres in the UK. I'm interested in small-company
:25:30. > :25:35.development. A nice face more I mean single figure employees. I am
:25:35. > :25:41.also interested in academia. When I was at university, I wanted to
:25:41. > :25:49.teach. I had a teacher training places set-up. I thought I would
:25:49. > :25:54.give accountancy a try. 30 years on, I've had enough of that. I am