Utility Week

UTILITY WEEK | MARCH 2023 | 15 Regulation A regulator has to regulate There's also a question of regulatory style. Jonathan Brearley's arrival in post as chief executive coincided with the pandemic, when a collaborative approach was essential to navigate through challenging and unchar- tered territory. Ofgem managed that well but a collabo- rative model isn't right in all circumstances. At times a regulator has to regulate. The board also has to take some responsibility. The four non-executive board members all have corporate backgrounds, with chair Martin Cave an academic. There is no consumer or environmental voice. It is not clear if they are equipped to bring the sort of expert scrutiny and challenge that is needed on complex regulatory decisions – or indeed if it is clear what the role of the board is meant to be in those decisions. The advert for a successor to Martin as Ofgem chair says they are looking for an accomplished organisa- tional leader with an engaging and assured communica- tion style, humility and integrity. It's a substantial role (14 days/month) as it probably needs to be – but the balance of responsibilities between the CEO and the chair then risks becoming blurred, which creates its own governance issues. With Ofgem in the firing line it is no surprise that BEIS has relaunched its review of economic regulation that was announced a year ago. The original document focused on a review of regulators' duties and the provi- sion of strategic direction (both welcome but unlikely to change the world) and increasing network competi- tion (an unwelcome further distraction). The latest announcement also references the need for increased investment and an enhanced customer experience. While there may now be calls for a radical overhaul of Ofgem, that too risks being a distraction. The review should focus instead on governance, including thinking afresh about the role of the board in regulatory bodies and how to ensure the consumer voice and net-zero concerns are not lost. In the meantime Ofgem should ensure it is listening to the diversity of voices that are impacted across the range of its work. As a practical illustration, I have recently been trying to get Ofgem to address the way in which the price cap fails the 3 million customers on Economy 7 or other multi-rate tariffs. Having raised my concerns with Ofgem back in the summer, Economy 7 didn't feature in its Programme of Work for the price cap published at the end of last year. Sustainability First therefore hosted a roundtable for consumer groups and others where I presented shocking evidence on the lottery that these customers face in terms of tariffs and the fact that the price cap doesn't reward them for using more electricity at night when wholesale prices are lower. I am confident that Ofgem now understands the issue but inevitably they will get push back from suppliers who benefit from the current rules. Whose voices will it listen to? And do we have to wait until Economy 7 hits the headlines before Ofgem acts? Let's see. Maxine Frerk is a former senior partner at Ofgem and currently a director at Grid Edge Policy, and a Sustainability First associate U tilities regulators should be given a new duty to ensure resil- ience to climate change is factored into their sectors' invest- ment plans, the Climate Change Committee (CCC) has urged. In a new report the CCC concludes it is "plausible" that the UK will require £10 billion-worth of investment per annum to adapt to the consequences of climate change. Among a series of recommendations on how to facilitate this level of increased investment, the statutory adviser on climate change says industry regulators should be equipped with a new climate resilience mandate. This would involve including the need for investment in adapt- ing to climate change among the mandates and strategic priorities of regulators, like Ofgem and Ofwat. The report says the structure of the UK's system of regulation allows for investment in resilience by infrastructure operators, which is paid for through customer bills in sectors like energy and water. However, this will only prove an effective funding route for invest- ment in adaptation to climate change if it is driven by a "clear and explicit climate resilience mandate for regulators". The government has a role to put this mandate in place aligned to sectors' long-term resilience needs, says the CCC, adding that a "well-defined and operable expected resilience standard aligned to national level goals" will also be required. "If this is put in place, infrastructure owners and operators will be required to invest the appropriate amounts towards improved resilience to climate change." The new duty should include identifying, creating and setting out how to help realise project pipelines for adapting to climate change, which would be aligned with national objectives. The government can help to coordinate approaches where different types of infra- structure have interconnected risks, such as the impact weather- related power failures can have on the water sector. The report says climate resilience mandates and regulation will need to be "well designed" to ensure revenues are available at the correct scale and are used to support long-term measures. Novel approaches to infrastructure regulation are needed because the five-year cycles typical within infrastructure regulation can deter investment in projects with longer-term climate adaptation benefits. In addition, resilience standards aligned to national-level objec- tives should be introduced for agencies like the Environment Agency. Ben Caldecott, a member of the CCC's adaptation committee, said: "Government funding and public financial institutions have a critical role to play in unlocking private investment but we also need others to play their part. Regulated industries, like the railways and water sector, need to have updated mandates so they can increase investment in climate defences. Financial regulators and govern- ment policy must push companies and financial institutions to do much more. "Integrating climate risk into economic and financial decision- making across society is essential for urgently needed investments in our national climate resilience to materialise." David Blackman, policy correspondent CCC urges climate resilience mandate for regulators Analysis

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