Public energy company: outline business case

8 Appendix A – Risk Register

Risk Register

The following is intended to serve as a high-level risk assessment of the qualitative issues that could affect the chosen delivery model for the Public Energy Company.

This is not intended to be exhaustive but reflect the risks faced by similar entities as that proposed by Scottish Government.

All risks are closely linked and are mitigated through detailed development planning and (once live) robust operational diligence.

Table 61 - Risk register for the Public Energy Company

Key:

Very High

Very high materially impact

This risk would have a very significant negative impact upon the Public Energy Company and its delivery and all steps should be taken to avoid this.

High

High materially impact

This risk would have a significant negative impact upon the Public Energy Company and its delivery if it materialises.

Medium

Medium materially impact

This risk would have a medium impact

Low

Low materially impact

This risk is deemed to have a limited impact on the Public Energy Company due to low financial impacts or ease of mitigation

Very High

Very high likelihood of risk materialising

The likelihood of this risk materialising is very high during the project

High

High likelihood of risk materialising

This risk has a high likelihood of occurring

Medium

Medium likelihood of risk materialising

This risk has a medium likelihood of materialising during the project and activities of the Public Energy Company

Low

Low likelihood of risk materialising

There is little risk of this event occurring

Risk	Cause	Materiality/ Impact	Likelihood	Mitigation
Failure to establish requirements of White Label partner in a prompt and timely manner	Delays in agreeing tender specification and/or governmental entity that will be contracting entity	Very High	Low	Initial scoping of requirements has already been undertaken as part of Scottish Government policy statements, SOC and public engagement events Continued engagement with Local Authorities to ensure expectations of potential stakeholders in the Public Energy Company are met, while focusing upon March 2021 deadline
Inability to successfully choose a White Label partner in a prompt and timely manner compliant with public procurement regulations	Lack of viable tender responses from potential White Label partners Delays in evaluating tender responses Breach of public procurement regulations due to non-compliant tender	Very High	Low	Detailed tender specification can be developed based upon Scottish Government's requirements and using information from comparable exercises undertaken by other Local Authorities It is assumed that a contracting organisation of the scale and scope of the Scottish Government, and the profile associated with being "Scotland's energy supplier" will yield high levels of interest Experienced personnel to be assigned to project to ensure prompt and effective evaluation of responses from potential White Label partners. On the assumption of a minimum three-month timescale for a full tender exercise to obtain a White Label partner, the current deadline of March 2021 is attainable, and may indeed allow for an initial unsuccessful tender run should such a situation arise For example, Norwich City Council undertook an unsuccessful tender for a White Label partner in early 2018 before re-issuing documentation in June 2018 and awarding the contract to Engie
Inadequate planning and development	Insufficient resourcing levels (personnel, experience, systems, time) made available to develop the White Label by central and/or local government Insufficient focus at central and/or local government level	Very High	Low	Detailed business case that identifies all known costs and best view of likely revenues over a long-term, e.g. initial five years with growth projections and thereafter steady state revenue Longer-term objectives for the Public Energy Company have already been stated by Scottish Government, which should evolve to reflect customer demands, industry/sector developments and stakeholder requirements From a personnel perspective, the Public Energy Company will need suitably skilled resource This is over and above operational requirements associated with marketing and communications, systems and stakeholder engagement, and wider legal issues, e.g. ensuring State Aid compliance
Local Authorities may have concerns about participating given their own policies and targets, and therefore the depth of interest is unknown	Lack of knowledge and/or awareness of the Public Energy Company and its potential benefits Existing local-centric policies or schemes that may be incompatible (operationally or financially) with the Public Energy Company	Very High	High	Public engagement events have already been undertaken to examine potential interest from Local Authorities, in addition to ad hoc conversations and policy statements from Scottish Government These can be expanded upon and formalised as a means by which to promote transparency as to the operation of the Public Energy Company and its objectives, and how these can be integrated with local initiatives and other policies The Scottish Government should, however, expect that some Local Authorities may be unwilling or unable to participate in the Public Energy Company due to their own schemes, e.g. the council-backed Aberdeen Heat & Power, Hebrides Energy
Potential participants may have concerns about leaving legacy relationships, which may discourage them from joining	Existing contractual relationships and/or long-term contractual structures for procurement Concern regarding legality of and/or compliance associated with the Public Energy Company	Very High	Medium	Common elements and approach between old and new methods of energy procurement and supply would be expected, and the Public Energy Company should communicate this as part of its wider engagement plan with potential members Communication of compliance and compatibility with existing approaches, i.e. the Public Energy Company is not mutually exclusive with other delivery approaches for energy Communicate that participation at project inception is not essential and that local authorities can join at a later date
Insufficient project management and programme oversight	Insufficient resourcing levels (personnel, experience, systems, time) to establish, operate and manage the Public Energy Company and its (key) relationships Failure to devote adequate commercial and legal resource to the project	Very High	Low	Establish clear lines of responsibility and reporting at outset Creation of well-resourced Project team with access to external advice/expertise (market, legal, regulatory) as required Create timeline for Project with critical paths and defined "go/no go" milestones which links back to detailed business case
Unclear/complex governance structure	Absence of a clear organisational and management structure, SoDA etc. Absence of a suitably flexible management and governance structure Failure to devote adequate commercial and legal resource to the project	Very High	Medium	Establish at the outset a workable governance model that ensures clear delineation of responsibility for the Public Energy Company and stakeholders Ensure that the structure of the Public Energy Company is flexible enough to allow for changes in the ownership model over time Sufficient legal resource to put in place governance structure and form company – including opening company bank account, access to line of credit/collateral, etc. Describe KPIs/reporting requirements for company/board/management
Risks of diseconomies of scale as Local Authority participation grows	Failure to commit adequate resources (financial, systems, personnel) to the Public Energy Company and its management and operation as its customer base and/or number of participating local authorities	High	Medium	While economies of scale from the activities of the Public Energy Company are apparent, there is also a risk of diseconomies of scale should the scale of the membership and its activities grow too quickly or be inefficiently managed While not wishing to discourage or dissuade new participants, Scottish Government must ensure that growth is carefully managed in line with agreed, transparent criteria Furthermore, while the Public Energy Company will remain open to all Local Authorities, new stakeholders must also be chosen based upon transparent and auditable criteria and an expectation that they share the aspirations and goals of Public Energy Company and its existing stakeholders
Loss of customers upon expiration of the White Label agreement	Under industry rules, White Label Suppliers do not own their customers – instead, these are registered to the Fully Licensed partner This means that if the contractual arrangement between the Public Energy Company and its partner were to end, the Public Energy Company would lose its customers unless action were taken to retain them	High	Medium	The Public Energy Company could look to contractually secure its right to its customers through either securing the right to purchase its customers upon moving partner supplier, or through an exclusive contact and marketing rights to its customers to help persuade them to switch with it
Significant change to retail or wholesale market environment	Unexpected and material shift in regulatory and/or legislative structure of the industry "Black Swan" event affecting the retail and/or wholesale market(s)	Medium	Medium	Detailed business case developed with prudent view of all known costs and reputable forecast of future trajectory Use of external advisers to sense check business case and provide independent view of market and regulatory developments Inclusion of contingency fund to accommodate any unforeseen changes
Actions of Public Energy Company and/or White Label partner could negatively impact upon public perceptions or reputation of Scottish Government and other stakeholders (and vice versa)	It is not certain that the Public Energy Company's tariff(s) will always be among the most competitive Poor customer service Public Energy Company fails to meet primary objectives Adverse press coverage of the Public Energy Company	Low	Low	Risk associated with non-compliance with industry rules technically falls on the partner supplier in White Label supply, but we would expect the Public Energy Company to have strict compliance controls to protect itself For example, traditional arrangements have prevented the White Label partner from carrying out face-to-face marketing, this being the responsibility of – in this instance – the Public Energy Company A suitably robust Service Level Agreement (SLA) with agreed metrics and penalties for non-compliance could be used to mitigate this risk
License/rule changes	Industry rules and licences are "living documents" and subject to change. For example, Ofgem is currently reviewing the supply licences to move to a "Principles Based Regulation" framework – plan for robust, but flexible, systems to monitor and report on compliance	Low	High	Take third-party reporting service on regulation developments to highlight where change may be required to the Public Energy Company's plans Smaller suppliers are typically more nimble at adapting to regulatory change Include a contingency budget to accommodate inevitable rule (and as a consequence process/ resource) change
Operational failure/shortcoming once live	Insufficient resourcing levels (personnel, experience, systems, time) made available to operate the White Label by central and/or local government Systems failure Breakdown of relationship with White Label partner	Low	Low	Clear and detailed Target Operating Model (TOM) from inception to market entry (domestic), expansion of offering (energy-as-a-service), expansion of target customer base (non-domestic) and transition to Fully Licensed Supply

Source: Cornwall Insight

Risk Register ownership and operation

During the set-up phase industry and legal specialists will be required to assist with negotiating contracts and services, translating a business plan into a Target Operating Model, developing strategies for trading and pricing, marketing and public engagement and wider social initiatives.

The commercial and reputational risks and their mitigation would need to be a core element of the creation of the Public Energy Company. We recommend that each stage of the company's development has a Risk Register that identifies:

• All risks (including assumptions)
• Assigns each an impact and probability rating
• Where the risk impacts on other work streams
• Action to mitigate the risk
• Tracking of when the risk was last regraded

The Risk Register would be maintained by an appropriate person/team at the different stages of the Project and be reported to the relevant executive powers to monitor the risks and approve mitigation actions as necessary. The table below suggests the owner and executive for the Risk Register.

Table 62 – Risk owners and executives

Project phase	Risk Register owner	Executive
Planning/ development	Business development manager Link to Target Operating Model Sponsor Finance Director (or equivalent) Company incorporation/governance work stream, business model/ plan, external advisers, recruitment	The Scottish Government sponsor Establish required reporting metrics Focus on go/no-go risks and mitigation Set long-term strategy, but focus on short term (e.g. establishment of Public Energy Company)
Market entry/go-live	Energy company executive Link to Target Operating Model, executive roles (e.g. operations, finance, counterparty contract management etc.) as required, marketing and engagement plan (stakeholder and customer), compliance team	Stakeholder board Establish required reporting metrics Focus on operational process, customer contract/regulation/legislation compliance, and latest market growth/revenue forecasts and costs
Operational phase/ full market entry	Ops/Finance director (or equivalent) Link to operations model, finance reporting, customer services, counterparty contract management/SLAs/KPIs, market/regulation monitoring	Stakeholder board Establish required reporting metrics Focus on operational process, customer contract/regulation compliance, market position, policy and regulation changes, and latest market growth/revenue forecasts and costs

Source: Cornwall Insight analysis