Utility Week

10 | 18TH - 24TH JANUARY 2019 | UTILITY WEEK A UtilityWeek c ampaign Regulators rule on what's fair With a new era of regulation emerging and fairness becoming the new watchword, now could be the perfect moment for a new deal for utilities to help them strike a new bargain with the public. The old and relatively narrow concept of economic regulation is crumbling in favour of delivering so-called fair outcomes for consumers. This extract below from a premium report by Utility Week political correspondent David Blackman shares some recent industry thinking on this landmark challenge for regulation. Why fairness is the new watchword There was a time when fairness was a forbidden word in regula- tory circles. "It was considered an abstract term, not something that regulators should be concerning themselves with or engag- ing with," recalls one observer. Instead the market, through competition, was going to drive down prices while the regulator was charged with pure economic regulation, leaving the government with limited involvement. Over the past five years the mood has changed, and not only within utilities. Thinking has shied within economics itself. Ten years of austerity has also sharpened concerns about those who have problems paying for essential services like energy and water. As Catherine Waddams, professor of regulation at the Univer- sity of East Anglia, told Utility Week Congress in October, where the changing priorities of regulation was very much a key theme: "Regulators are expected to have an understanding of what customers' needs are in a way that would have been unthinkable in the engineering-driven industry 50 years ago." The remit of regulation has widened, agreed Ian Thompson of consultancy Economic Insight: "Economics can't tell you what fair outcomes are, but economic regulators are now being called upon to ensure that outcomes are fair." The outlines of the new era of regulation were also in evi- dence from the regulators themselves at the Utility Week event. During her keynote presentation, Ofwat chief executive Rachel Fletcher said: "We need to move away from relying on the very comfortable mantra that we are only focused on narrow issues of service and price. This means stepping beyond the nar- row remit originally prescribed for economic regulation. "I don't think the model of providing public services through privately regulated companies will be successful if regulators wash their hands of these broader concerns. "We have decades of experience as regulators but still have much to learn about how to influence corporate culture, par- ticularly where we can't rely on competition to align companies' interest with customers' interest." This new approach chimes with public perceptions, added Fletcher. "What people care about transcends the transactional, they care about price and delivering services at efficient prices. "But particularly when it comes to provision of essential ser- vices, like water, they care about corporate behaviour, dividends, executive pay and whether a company is providing a social and environmental benefit." com petitive – although the majority, (46 per cent), polled no. Meanwhile, over half (54 per cent) would not be prepared to pay more for their elec- tricity to speed up the move to renewables. The same proportion were also unaware that a portion of their electricity bill goes towards the decarbonisation of supply. Nationalisation The emergence of the nationalisation debate has rocked utilities. From being a fringe idea, it has moved centre stage to become a Labour commitment and increasingly, quite feasibly, a potential future policy – something we will be exploring later in our campaign. In our survey, just under one-third of respondents (32 per cent) said they felt the ownership and management of utility com- panies should rest with national govern- ment, although almost one-quarter (23 per cent) were unsure as to who would be best placed to run these services. A total 14 per cent of those questioned thought utility companies should be owned and managed by private companies – exactly the same number as those who thought it was a job for local government (the age profile of these respondents being between 18 and 24). Only slightly more (16 per cent) advocated private/public partnership arrangements (see Utilities Ownership graph). Nationalisation policy could wield some influence on voting behaviour, the survey found, with 34 per cent of respondents revealing it would make them more likely to vote Labour. Eleven per cent (predominantly those aged over 55) said it would make them less likely to vote for the opposition party. A total 55 per cent of those surveyed said it would have no impact on their vote. A key message for utilities, however, was that precisely half of respondents felt the greatest benefit of nationalisation would be cheaper services, with around one-third believing it could bring better service overall. Other findings revealed that 28 per cent thought it could create greater investment to tackle issues and problems, with 23 per cent believing it would speed up efforts to tackle climate change through the decarbonisation of networks. Over one-quarter (28 per cent) of those who responded however felt there was no benefit to the policy (See Nationalisa- tion Benefits graph). The biggest concern about nationalisation of utilities among those we polled was the likely cost and affordability (at 34 per cent) of such a policy. But respondents were split on this, with practically the same number (32 per cent) unconcerned. Survey Premium report continued from page 8 ☛

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