Thursday 29 January 2015
Treasury and Resources is continuing to develop its role as shareholder in the States-owned trading companies with the publication today of Memoranda of Understanding (MoU) that it has agreed separately with both Guernsey Post (GPL) and Guernsey Electricity (GEL).
The MoUs have been developed with both companies by Treasury's Supervisory Sub-Committee, which was established to continue providing a focused, effective and active vehicle for undertaking the Department's oversight responsibilities.
Minister for the Treasury and Resources Department, Deputy Gavin St Pier, explains:
"Whilst the commercial success of the companies is an important consideration for the Department, the Sub-Committee's interest is also very clearly focused on protecting the interests of consumers and ensuring that the companies act in the best strategic interests of the Bailiwick of Guernsey.
The MoUs set out clearly defined shareholder objectives and targets for the companies that reflect these differing interests and include a range of Key Performance Indicators (KPIs) against which the companies will each have to report so we can monitor their performance. They also include the guaranteed customer service standards that have previously been agreed with CICRA.
Importantly, the Department recognises that it would be entirely inappropriate for its Sub-Committee to act as a "shadow" of the GPL and GEL Boards of Directors. Members of the States, as shareholders, should not be interfering in the operations of the businesses, but it is important that the Boards and management of the companies are accountable to politicians for their performance. The MoUs clearly define the expectations and boundaries that should exist between the shareholder and the companies and firmly establish the roles and responsibilities that each party will play.
Our aim is to ensure that the businesses continue delivering cost-effective and innovative services which are responsive to their customers' needs. We recognise that both companies are key economic enablers and form an essential part of the Island's infrastructure. It is essential that they operate efficiently and responsibly in the best interests of the community at large."
A key area of activity for the Sub-Committee will be benchmarking the companies' performance in areas of strategy, pricing and customer satisfaction. For instance, GPL's objectives include the provision of domestic postal services at externally benchmarked and competitive prices. It will also be required to demonstrate good and externally benchmarked customer satisfaction.
In GEL's case, its pricing will be benchmarked against Jersey. Deputy Roger Perrot, a member of the Sub-Committee, explains:
"It is recognised that the cost of electricity provision in Guernsey will always be higher than in Jersey for a variety of factors. These include: Jersey's larger economies of scale; the longer distances involved in importing electricity to Guernsey from France, with the consequential increased losses of electricity over that additional length; and, the different security of electricity supply policies that are in place in both Islands. Nevertheless, the Sub-Committee has set GEL a target to reduce the difference between its own and Jersey Electricity's average tariffs by 6% over the next three years."
The full list of objectives and KPIs for each company is set out in Schedule 2 of their respective MoUs.
The MoUs will be underpinned by a requirement for both companies to report regularly to the Sub-Committee on the results of their customer surveys. In addition, both companies have committed to commissioning periodic independent reviews of their efficiency, the terms of reference for which will have to be agreed with the Sub-Committee.
The Sub-Committee's Sir John Collins goes on to explain:
"At a strategic level, another fundamental area of benchmarking activity for the Sub-Committee will be in the scrutiny of the companies' strategic business plans. We will be carefully monitoring the postal and electricity experience of other similar jurisdictions to examine emerging best practice and then working collaboratively with GPL and GEL to see what we can learn for local use.
The Sub-Committee has already established objectives and KPIs for Aurigny Air Services, the initial results of which were published by the Department towards the end of last year. It is pleased to be extending these arrangements now to GPL and GEL as part of their new MoUs. It is committed to publishing the results of its monitoring arrangements for both companies on an annual basis, except where there are good commercial reasons for keeping an indicator confidential."
In addition to the shareholder objectives and KPIs, the MoUs also include details of the following: the reports to be provided by the companies to the Sub-Committee (strategic and business plans, transparency reports, financial reports and performance management); a list of those matters and decisions that should be referred to the Department as shareholder; a schedule of regular formal meetings that will be held with the Department; dividend policies; and, corporate governance requirements.
In approving the Department's 2015 Budget proposals, the States agreed to commission an external review of the appropriate level of investment return that should be generated from the States' trading entities, including GEL and GPL. The intention is that such investments should generate a return which the States can then reinvest in future capital infrastructure for the Island. The Sub-Committee is looking forward to supporting this review process so that it can then finalise the dividend policies for both companies.
The MoUs are being published ahead of a joint report from the Commerce and Employment and Treasury and Resources Departments being presented to the States in March setting out their recommendations on future oversight arrangements for GEL and GPL following a review of the existing utility regulation.
What are the objectives of the Supervisory Sub-Committee?
The objectives that have been agreed by T&R for the Supervisory Sub-Committee are as follows:
- Establish clear shareholder objectives for the companies and monitor their performance against appropriate industry benchmarks and quality standards to ensure that the businesses deliver cost-effective and innovative services which are responsive to their customers' needs and that they operate efficiently and responsibly in the best interests of the community;
- Ensure that T&R is an effective and active shareholder in the companies; and
- Seek value and an appropriate return that provides best value to the Guernsey economy from the companies for the community, whilst striking a balance with the enabling rôle they play in supporting the Island and its social, economic and environmental objectives for the long-term benefit of the Island and its community.
What are the terms of reference for the Supervisory Sub-Committee?
The terms of reference that have been established for the Sub-Committee include:
In conjunction with C&E, regularly review the States Guidance to the Shareholder and ensure that T&R is fulfilling its obligations under this guidance. (Under the provisions of the States Trading Companies (Bailiwick of Guernsey) Ordinance, 2001 ("the STC Ordinance") the States are able to give guidance of a general nature on the policies they wish T&R to pursue in exercising its functions as shareholder. The STC Ordinance places a statutory duty on T&R to have regard to any such guidance.);
- Engage with and consult C&E on strategic matters relating to GPL and GEL;
- Establish clear shareholder objectives for the companies, including but not limited to areas such as pricing and pricing controls, financial performance, quality of customer service, corporate governance, sustainability, reputation and compliance with environmental standards;
- Establish the financial, operational and strategic parameters within which the companies can operate with and without reference to the Shareholder;
- Engage with the businesses on financial matters and hold them to account in terms of performance against their business plans and shareholder objectives; and
- Scrutinise the process employed for the appointment of the Chairman and the non-executive directors of the Board.
Who are the Sub-Committee's members?
The Sub-Committee is presently made up of two members of the Treasury and Resources Board, Deputy Gavin St Pier and Deputy Roger Perrot, and three non-States Members. These are:
- Sir John Collins - a former Chairman and Chief Executive of Shell UK, a former Chairman of both National Power and DSG (Dixons Stores Group), a former Non-Executive Director of NMR Rothschild & Sons, a previous Chairman of the DTI/DEFRA Sustainable Energy Policy Advisory Board, with substantial experience of operating and group Board direction, shareholder value and regulatory regimes;
- John Hollis - a former global Accenture partner, with extensive experience of strategic and operating performance reviews across multiple industries and innovative benchmarking, and a non-States Member of the Treasury and Resources Board;
- Steve Le Page - a former PwC Channel Islands Managing Partner, with substantial experience in regulatory reporting and performance reviews.