Public energy company: outline business case

An independent outline business case for a national public energy company.

7 Management Case

7.1 Introduction

The purpose of the Management Case is to set out the ongoing Project management and governance arrangements as the Project progresses from OBC to delivery in the form of a fully developed Public Energy Company providing gas and electricity to the domestic Scottish (and wider UK) market.

The Project will be delivered by personnel with experience in the energy sector, with support from Local Authorities involved in the Public Energy Company from the outset and a team of advisers including, financial, legal and technical specialists. These specialists will be appointed prior to the next stage of the Project. For the initial development of the Public Energy Company into a fully formed market offering, it is anticipated that, although not taking ownership of the Public Energy Company, ultimate responsibility will remain with Scottish Government, supported as appropriate by involved Local Authorities.

7.2 Project management arrangements

The current stages of the Project are as follows:

  • Outline Business Case – this is the current stage which sets out the Business Case for the Project and how it will be delivered
  • Confirmation/revision of the preferred solution through continued engagement with Local Authorities – Local Authorities will be presented with this OBC as the proposed path forwards for the establishment of the Public Energy Company. This process will be open to input and comment from Local Authorities, with the preferred option and OBC revised as necessary to support Local Authority objectives
  • Confirmation of Commitment to the development of the Public Energy Company – following any necessary revisions to the OBC, Scottish Government will review the information available and decide whether to progress with the Project on this basis
  • Commercialisation Phase – where the initial details regarding commercial agreements start to be negotiated (e.g. White Label negotiations with third party licensed supplier/s, level of involvement and nature of commitment of Local Authorities wiling to be involved at the outset of the Public Energy Company)
  • Procurement Phase – where, in relation to identifying the appropriate White Label Supplier, a third-party energy supplier is selected
  • Final Approval – where the Final Business Case and Final Decision is made and final sign off is obtained from all relevant parties

The Project, up to and including the OBC is being managed by the Consumers and Low Carbon Division, Scottish Government, on behalf of Scottish Government's interests (maintaining an awareness of the aims and objectives of other public sector stakeholders).

As the Project moves into the commercialisation phase, it is likely a dedicated Project Manager will need to be appointed to fully manage the Project and ensure all stakeholders interests are safeguarded to the best of their ability. The Project Manager will have responsibility or Project managing the creation and set-up of the Public Energy Company and the procurement of the partnered energy supply company. The Project Manager will be responsible for the procurement of specialist services, including; financial, technical and legal advisers who will work with the Project team throughout the planning of procurement and implementation.

The proposed structure of the Public Energy Company is that an active energy supply company will enter into a White Label arrangement with the Public Energy Company for the provision of gas and electricity. The details of a potential structure that could be adopted and the reasons behind this are set out in the Commercial Case.

7.3 Project reporting structure and roles and responsibilities

It is anticipated that Commercialisation and Procurement of the Project could take a significant period of time. Due to the time constraints arising from the commitment to deliver the Public Energy Company before the end of the current parliament (March 2021), it is essential that effective Project management is undertaken, with a clear understanding of responsibilities, including communication of ongoing development of the Project with key interested parties and stakeholders.

This will include:

  • Providing Scottish Government and other key stakeholders with up-to-date Project developments
  • Co-ordinating any conversations with bidders during procurement
  • Budget monitoring and approval of spend
  • Putting into action key decisions
  • Timely communication with bidders

The proposed Project Management Structure is presented below:

Figure 12 - Project Management Structure

This shows the proposed project management structure. At the top is the Senior Responsible Owner, below that is the Project Director, who would liaise with COSLA and SOLACE. Next down is the Project Manager, who would have under them Project Support, the Finance Manager, the Technical Manager and the Principal Solicitor. The Finance Manager would direct Financial Advisors, the Technical Manager would direct Technical Advisors and the Principal Solicitor directs Legal Advisors.

7.4 Timetable

The table below sets out the proposed timetable for the next phases in the delivery of the Project. Whilst the timetables are considered to be deliverable by the Project Team, the timetable should be viewed as flexible to reflect the fact that future information is not yet known which could impact upon the length of each stage. The timetable should be updated as and when new information is gathered which could suggest amendments are required. The timetable is therefore projected on a basis considered to be reasonable based on the information known at the time of drafting the OBC.

Table 59 - Proposed project timetable
Phases key milestone approximate date
OBC Submission of original draft OBC Apr-19
Submission of updated OBC Aug-19
OBC approved Sep-19
Local Authority Engagement Presentation of OBC to Local Authorities May-19
Consultation and involvement of Local Authorities to determine commitment May – June 2019
Confirmation of commitment Project sponsors formally ratify commitment Sep – Oct 2019
Appointment of legal, financial and technical advisers Sep – Oct 2019
Establishment of Project Board and Project Team Sep – Oct 2019
Procurement planning Procurement planning period, including pre-procurement supplier engagement Nov 2019 – Mar 2020
Procurement Phase 1 OJEU notice published Mar-20
SQ evaluation Apr-20
Shortlist approval Apr-20
Phase 2 Issue Invitation to Tender (ITT) documents May-20
Clarification of ITT requirements May – June 2020
Response preparation period May – June 2020
Evaluation & clarification Jun-20
Internal Review and winning bidder selected Jun-20
Submit 90% complete Final Business Case (FBC) Sep-20
Phase 3 Preferred Bidder confirmed/announced Nov-20
Contract Finalisation Dec-20
Finalise & Submit FBC Dec-20
Phase 4 Contract Award Jan-21
Planning Period Jan – Feb 2021
Preparation Period Feb – Mar 2021
Service operational Mar-21

Note: The dates presented above are estimates of the timetable through to an active Public Energy Company. This will be further developed through the procurement planning phase. These assumptions should be updated as the Project timelines are finessed

Timelines of the process to an operational Public Energy Company require an awareness of and mitigating strategies for key timetabling risks that could derail the process. All stages of a procurement process are vulnerable to delay.

As a result, there should be established a fully resourced, experienced and dedicated Project Team and a robust risk management structure that will help minimise the risk of delay. The table below sets out the mitigating actions to be applied to help reduce their likelihood or impact.

7.5 Key Timetable Risks

Table 60 - Timetable risks and mitigations

− Key Risk − Mitigating Actions
OBC not approved within timeframe allowed or not approved at all
  • Timely submission of OBC to allow for appropriate review within set timeframe;
  • Regular dialogue with Scottish Government to ensure covering desired/required/appropriate areas
− Dialogue with Local Authorities takes longer than anticipated
  • Designated lines of communication between the Public Sector investors
  • Clear processes in place for addressing as far as possible Local Authority concerns;
  • Early buy-in of interested Local Authorities into the Public Energy Company process
− Procurement process for White Label supply agreement take longer than anticipated
  • Dedicated procurement team managing procurement process;
  • Early engagement with the market;
  • Develop comprehensive high-quality procurement documentation and dialogue strategy in advance of OJEU;
  • Deselection of bidders in a timely fashion throughout to streamline the process effectively and focus resources on most likely bids;
  • Regular review of procurement process
− Negotiation of Terms & Conditions takes longer than anticipated
  • − Dedicated procurement team managing procurement process;
  • Clear and streamlined Governance procedure with appropriate delegation of decision making to designated individuals

7.6 Decision making in the Public Energy Company

Board of Directors of the Public Energy Company

The mechanics of setting up the Public Energy Company are fairly straightforward. However, careful consideration will be required to be given to both the terms of the memorandum and articles of association of the Public Energy Company and whom the directors will be to ensure that the correct skillset and appropriate expertise is available for the delivery of the Project. It is anticipated that the key stakeholders into the Project (the Public Sector investors) will require representation on the Board. Initial appointment is therefore important, as is the mechanics of the Public Energy Company for the removal and appointment of directors.

The directors of the Public Energy Company are responsible for managing the business of the Company on a day-to-day basis within the parameters of their delegated authority. Equity investors into the Public Energy Company will need to understand the differing roles played as a shareholder and investor of the Public Energy Company (which has no obligation to the Public Energy Company – therefore, for example, decisions made by these parties are de-linked from those of the Public Energy Company) and the legal responsibilities of the directors of the Public Energy Company who must at all times act in the best interests of the Public Energy Company.

The Public Sector investors may consider the need for senior officer representation on the board of directors of the Public Energy Company given the statutory obligations of the directors and the relevant need to act in the best interest of the Public Energy Company (and potential reporting requirements to Companies House etc.). The advantage of senior officer representation is that it provides for continuity upon changes in administration and ensures that the business plan of the Public Energy Company continues in the long term. It also helps to mitigate against the risk of conflicts.

External advisers

External Advisers (financial, technical, legal) should be appointed to the Project, and report to their respective engagement managers. During the preparation of the OBC the external advisers assisting the Project Team has been:

  • Financial – Grant Thornton UK LLP led by Andy Boak; and
  • Technical – Cornwall-Insight Limited led by Ed Reed;

No external legal advice has been sought through the development of the OBC

In the progression of the Project from OBC to commercialisation, these roles will need to be re-procured (and a legal adviser procured) to provide the Project Team the independent advisory support needed to progress through the procurement process and in to deliver of the Public Energy Company.

7.7 Governance of the Public Energy Company

Shareholder/Owner decisions

Certain key strategic decisions of the Public Energy Company may be reserved for determination by the shareholders/owners of the Public Energy Company. Depending on the established commercial structure of the Public Energy Company, this may require the consent and agreement of numerous Local Authority minority shareholders in the Public Energy Company. The level of involvement from Local Authorities who wish to become part owners in the Public Energy Company will have an impact on the Governance of the entity. It has anticipated through the work performed in this OBC that Public Sector parties taking an equity stake will sit at the top of the ownership structure and will be responsible for the key strategic decisions of the Public Energy Company. The exact form of this is yet to be determined and will require work and formalisation once the consultation process with Local Authorities has been completed. Decisions taken as a shareholder/owner will be taken in its capacity as a Local Authority and are therefore not required to be aligned with the commercial interests of the Public Energy Company.

Matters reserved to the shareholders/partners

It is anticipated that there will be a list of reserved matters sitting outside the day-to-day activities of the Public Energy Company. It is anticipated that these matters would include:

  • Altering the strategic objectives of the Public Energy Company;
  • Admitting new shareholders/partners, or changing the ownership structure or rights of the Public Energy Company;
  • Making a decision to wind up the Public Energy Company;
  • Business plan approvals; and
  • Committing to finance or procure external finance.

The shareholder/partnership agreement and reserved matters will need to be tested at procurement and agreed among the shareholders/partners.

7.8 Benefits management strategy

The benefits of the Project have been described in the other sections of this Business Case. These benefits, considered in tandem with the key risks identified as inherent in the Project, have been used to analyse the options and arrive at the preferred option.

The key benefits, both monetary and non-monetary will be documented in a benefits management strategy, with a description of the benefit, measurement, key dates, dependencies, risks and the owner. Benefits must be measured regularly and reported on to the Board or Scottish Government. Each benefit will have an owner who is responsible for measuring and reporting on the benefit realisation.

7.9 Regulatory and environmental requirements

The Project Management team will ensure that any regulatory or environmental requirements including permits or licensing are met, should these be required. The necessary requirements can be documented through a 'Register' approach. This will be developed through discussions with:

  • Scottish Government
  • Local Authorities involved in the Public Energy Company
  • Legal, Technical, Financial Advisers
  • Other key stakeholders

The register will be maintained and reviewed throughout the Project development process, to ensure requirements are met at the appropriate juncture of Project development.

7.10 Risk management

Key risks have been identified and documented in the Risk Register formed by the OBC Project Team. Each of the key risks of the Project have been assigned potential mitigating actions. Risks should be monitored and updated as appropriate going forward by the established Project Team and Project Manager. This will help to ensure that mitigating actions remain relevant and are being performed to minimise the identified risks.

The Risk Register is attached at Appendix B.

7.11 Conclusion and next steps

The Scottish Government have considered the Project's risks and mitigating actions, the potential benefits and tracking of such, as well as the required practical arrangements to deliver the Project including procurement considerations, services required and Project management arrangements. The Project is expected to be achievable, with a dedicated Project manager and staff input into the Project as well as support from specialist legal, technical and financial advisers, as appointed.



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