Utility Week

UTILITY WEEK | 15TH - 21ST MARCH 2019 | 13 The shape of water The political narrative around how water companies should operate has come full circle – and continues to change, our week seven report revealed. It's a complex scene. Renationalisation under a Labour government has become a very real prospect. Meanwhile, some savvier water companies have already acted to adapt their privatised models and public images with strategic corporate moves around fairness and transparency. But privatisation and nationalisation, we found, were not the only games in town. The idea of mutualisation is growing fast as a serious alternative. Mutual ownership is viewed by some as the best way of reversing the industry out of privatisation, which they say is insu• ciently competitive and weakly regulated. Labour MP Gareth Thomas has been a vociferous campaigner, calling for water companies to be turned into co-operatives that would remain in the pri- vate sector and continue to be regulated by what he described as a more e- ective Ofwat, branding the current regulatory regime "woefully weak". Responding, Ofwat said that through PR19 it had challenged water companies to deliver "more of what matters to customers in the coming decade, by being ever more resilient, e• cient and innova- tive in the services they provide". "We're con‡ dent that the sector can rise to this challenge," it said. What the shape of our water sector will end up looking like is therefore far from clear, but get- ting the model right, whether through regulatory reform or more structural policy change will prove a crucial decision. The regulatory challenge Our week eight report found that in an era of growing consumer power around energy retail, water, and increasingly networks, a fairer deal for customers has become a vital consideration – a regulatory challenge of our times. All the noises point to a system needing to adapt. And the winds of change sweeping through the corridors of the UK's utility regulators were clear when the energy regulator's chief executive, Dermot Nolan, used his keynote speech at its Future of Energy conference to proclaim that updating Ofgem's consumer vulner- ability strategy will be "the single most important thing" the organisation will do this year. Meanwhile plugging the legitimacy de‡ cit and addressing the digital divides among di- erent sections of society are key issues. But to ensure the regulatory model continues to be attractive for investment, transparency and predictability will continue to have to be at the heart of it, industry told Utility Week. This isn't just about protecting investors' pockets, some warned. The short- term price concerns of today's customers must be balanced with long-term investment requirements. Concerns were also raised about endangering innovation through regulatory creep and confusion. Another fear was that straitjacket, one-size-‡ ts-all, regu- lation could be detrimental in today's climate as industry and consumer needs continue to evolve. "If you deliver and you lead, and you make success, then I think the public typi- cally go: that's okay. "It's when there isn't success, I think, is where that anxiety comes from." Reforms from Ofwat last July tapped into the theme and called for boards to boost transparency around dividends and executive pay, "both matters which have a signi‡ cant bearing on customer trust". Each water company, the regulator said, must now "show clearly how it is link- ing performance-related executive pay to stretching performance for customers." Labour MP for Plymouth, Sutton and Devonport Luke Pollard pointed to how executive pay had "skyrocketed" with Eng- land's top nine water and sewerage com- panies earning a combined £23 million in 2017. The highest paid executive took home £2.45 million – 16 times the prime minis- ter's salary. "Instead of lining their own pockets, water companies need to be investing their pro‡ ts to provide a resilient service. We have had plenty of sound bites from both the secretary of state and Ofwat, but where is the action?" Meanwhile, non-party think-tank and lobby group the High Pay Centre called for remuneration committees charged with setting executive pay to be signi‡ - cantly reformed, in particular highlighting the "myth of super talent" and how there needs to be much greater diversity among those responsible for setting pay. Many executives, within utilities at least, are accepting it's an issue that increasingly goes with the territory. Boards know public, political and regulatory expectation is now only going one way and that it will gain even greater traction in the challenging months and years ahead. At the launch of our New Deal campaign in January, some industry voices from across the sector joined the debate to say they recognised customers wanted to see bene‡ ts "being shared fairly", that listen- ing willingly to customers was "vital", and that taking clear action on things such as fair tax and wage levels will prove far more powerful tools in addressing the legiti- macy challenge the sector faces than being corralled into such action by a regulator. If companies can run their ‡ nances in a di- erent way, with an overt focus on mat- ters such as fairness and pro‡ t-sharing, then the issue of executive pay will surely become less of a factor. UtilityWeek Interview: Rachel Fletcher, chief executive, Ofwat p6 ROUNDTABLE: TACKLING WHOLE-SYSTEM SOLUTIONS IN THE ENERGY SECTOR p18 1ST - 7TH MARCH 2019 THE BUSINESS OF UTILITIES UTILITY WEEK LIVE: THE MOST IMPORTANT TECHNOLOGIES FOR FACILITATING CHANGE p24 The shape of water "Economic regulators should do things to foster competition and protect consumers. The worry is that added complications have led to confused decision making." Audrey Gallacher, policy director, Energy UK

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