Utility Week

UTILITY WEEK | 8TH - 14TH NOVEMBER 2019 | 27 Operations & Assets A t the recent Utility Week Congress there was considerable discussion about the challenges posed by the government's 2050 net zero greenhouse gas target. It seems to me that, if we are to rely on regulated companies in achieving this end, the current regulatory models and policies more broadly have some inher- ent limitations that need to be addressed. Most obviously, the carbon price needs to increase to better re• ect the externality. Incentive mechanisms must be carefully designed, so that companies' contribution to delivering against the objective can be encouraged. The standard utility Wacc [weighted average cost of We need to decide whether or not we trust politicians or markets to deliver the outcomes we want. Net zero Sam Williams Director, Economic Insight capital], calibrated to the exist- ing proƒ le of investments and their associated risks, is most likely inappropriate. Finally, relatively short-term regulatory cycles are generally unhelpful for thinking about critical invest- ment choices that impact our wellbeing over generations. The above would be tricky enough, but it is occurring against a backdrop of other challenging, and seemingly con- tradictory, policy debates. For example, the recent report by the National Infrastructure Com- mission (NIC) highlights some well-known issues. With regard to regulation, it highlights a con- cern that regulators might natu- rally be sceptical of long-term capital investment, biasing them to approve cheaper (in the short run) less capital-intensive solu- tions. The NIC further suggests regulators need statutory duties that are more coherent and bet- ter re• ect the long-term nature of key objectives – speciƒ cally helping to achieve the net zero target. More generally, the NIC highlights a (now well-estab- lished) infrastructure underin- vestment problem. Yet, at the same time, the NIC report asserts that the Wacc has been set too high in the past, due to information asymmetries. In my view, that asser- tion not only lacks evidence, but runs contrary to the very essence of the con- cerns at the heart of the NIC report (that is, under- investment). Then, we come to "fairness" – the third key policy limb looming large over regu- lated companies. It seems we are on the cusp of a change in regu- latory and competition policy, such that authorities may, in due course, be able to intervene on fairness grounds alone. Yet the thinking remains confused and poses further contradictions. Most obviously, the debate oŽ en seems reduced to a blunt charac- terisation of variation in price or quality across consumers being "unfair" (i.e. fairness means we all pay the same and receive the same service). In ƒ nancial services, there has at least been some recognition of the well- known trade-o' arising from the potentially pro-competitive e' ects of price discrimination. Yet, despite acknowledging the trade-o' s, it seems regulators are gen- erally of the view that they need to "• atten" pricing lines, because (in their view) that's "fairer". So, again, there's a contradic- tion between regu- lators' well-trailed support of markets and competition, and how they respond to the natural outcomes of competition. Drawing the above together, how might we summarise the challenges faced by regulated companies? A risk that we could see the gradual erosion of independent incentive-based regulation. got the ƒ rst help from the ƒ rst Fuel Bank project (incidentally she only needed help once), fuel banks have opened in over 100 locations across Britain. And the families who have been supported talk passion- ately about the timeliness of the help and the improvement in their physical and mental health as a result (up 44 per cent and 40 per cent respectively). We've worked hard to prove and improve the concept and have learned so much about the impact we are having on people's lives. It was clear that expand- ing through collaboration was key. So, the Fuel Bank became a charitable foundation in 2017, allowing a greater range of organisations to contribute funds, and a range of national and local charity partners to both support and help to deliver the service within their com- munities. Around half of the help given goes to either children or some- body with a life-limiting illness or condition. Tellingly, for those of us working in the sector, less than one in ten people who are supported in Fuel Banks had considered contacting their energy company for help. And why would they contact us? As they told me loud and clear, they wouldn't tell their supermarket manager that they couldn't a' ord the weekly shop. Self-disconnection isn't something that can and should be solved by the energy industry alone, since the issues that lie behind not having money to cook a hot meal or have a warm shower are both complex and oŽ en started elsewhere. Others are clearly better placed with the trust, the reach and the expertise to help. The days are drawing in again. Maybe now, therefore, it is the time to consider how through greater collaboration between national and local government, and the energy and third sectors, we can best provide support and energy to those households who would otherwise be doing without. • Matthew Cole is chair of Trustees at the Fuel Bank Foundation Utility Week Congress 2019 was sponsored by "Relatively short-term regulatory cycles are generally unhelpful for thinking about critical investment choices that have an impact over generations." "Self- disconnection is not a choice: there's simply too much month left at the end of the money – and logically fuel goes before you stop buying food." Matt Cole, Npower

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