Utility Week

UTILITY WEEK | MAY 2021 | 17 Finance & investment Regulating for confidence The role of regulation in supporting or erod- ing investor confidence is a topic that never fails to stir strong feelings among utilities leaders and their investors. However, with a hotly contested water price control just final- ised and fresh bouts just beginning between Ofgem and the energy networks over RIIO2, thoughts on what is needed from regulation on the road to net zero were shared with a new level of urgency and passion at Utility Week's investor summit this year. Despite assurances from Ofwat's sen- ior director of performance and outcomes Aileen Armstrong that the water regulator's approach to balancing short and long-term interests "is working", Bristol Water CEO Mel Karam was clear during a panel debate on regulating for investor confidence that he felt otherwise. Karam said there is a clear disconnect between government ambitions and the regulatory process, which is eroding the attractiveness of the UK to investors. Setting out his criteria for what is needed to bring forward rapid, large-scale investment in the water sector (to meet the demands of grow- ing population, climate change, biodiversity crisis and water stress), Karam said: "We need alignment and consistency. Govern- ment priorities need to be consistent with what happens in the short term … today we can see that all of the principles we've talked about [for regulation that supports investor confidence] have been tested and overturned." Karam's thoughts were echoed by other panellists including including Scottish Power CEO Keith Anderson, who lamented a lack of alignment in policy and regulatory frameworks. "It's a nonsense to think regu- lators are trying to be obstructive. But are we all working to the same framework? Are we playing on the same field?" he asked. "What we need is a common strategic policy framework." Anderson went on to rail against an overly cautious and risk-averse attitude from regu- lators to encouraging investment ahead of need for the net zero transition. Asking "who in this country does not believe" in electrifi- cation of transport, the need to decarbonise heat or the need to increase renewable gen- eration, he said: "What's the risk?" Also in this vein, Anderson criticised the emergence of an apparent belief among reg- ulators that "outperformance is a bad thing". "It's not," he stated. "The whole purpose of the system is to get you to outperform. The purpose of incentives and innovation is to get you to be better and yet regulators are continued overleaf CMA findings drive debate Utility Week's Investor Summit took place just as the final findings of the CMA on PR19 appeals from four water companies were con- firmed, and shortly a˜er all energy transmission companies con- firmed they will appeal their RIIO2 settlements. Here's what some of our speaker had to say about these developments: "It was a pretty bruising process between Ofwat and the CMA, and as an investor that doesn't necessarily inspire confidence that these things are dealt with on an impartial merits basis." Peter Antolic, partner, Arjun Infrastructure Partners "It's almost seen as a badge of honour among the regulatory community if you can come up with a lower cost of capital than before. And that drives the wrong types of behaviours." Stuart Cook, managing director, Complete Strategy "It's been 18 months of my life and my team's which have been wasted. It's been a cost on top of an expensive price control process and it's a diversion from the running of the company ... It's a good outcome. Not a good experience." Bristol Water CEO Mel Karam "We've got water companies feeling that they've got to go to the CMA, we've got transmission companies feeling that they've got to go to the CMA. Something's not working and something's not right." Keith Anderson, CEO, Scottish Power "The Ofgem appeals as they evolve over the next seven months will hopefully convince someone in government to say we need to harmonise these [energy and water CMA appeals processes]." Dermot Nolan, director, Fingleton There is a clear disconnect between government ambitions and the regulatory process, which is eroding the attractiveness of the UK to investors. "Out performance is good. It's a good thing for the investor but it's also a bloody good thing for the customer." KEITH ANDERSON, CEO, SCOTTISH POWER

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