Is a multi-utility regulator needed?

At the dawn of the open water retail market, the move towards more multi-utility offerings looks inevitable. But is a multi-utility regulator the best way forward?

The non-domestic water market has already seen a plethora of multi-utility offerings announced, including Business Stream teaming up with Utilitywise and Veolia to offer customers a complete “end-to-end” solution for all their water, energy and waste needs. Additionally, Anglian Water Business has announced a partnership with Corona Energy to offer business customers a tri-utility supply of water, gas and electricity. And another retailer has told Utility Week it plans to announce a multi-utility offering of its own in the not-too-distant future.

Utilities service provider Gemserv published a research paper in February which suggested that, if trends towards multi-utility offerings build momentum, this could raise “fundamental questions” about the creation of a multi-utility regulator. The paper observed that the different regulatory obligations and rules operated by Ofwat and Ofgem could cause difficulties. For instance, regulatory overlaps or gaps could lead to lapses in the provision of protection for customers who opt for bundled utility deals.

Now, Ascendancy Water managing director Charles Vincent says the “unstoppable momentum” move towards multi-utility – gas, electricity and water – means that combining the regulation of multi-utility retail will be “essential” for customer protection, especially with a move to household water competition on the cards. “Whether the same is true on the wholesale side is less clear until government plans for a wholesale water market are clearer,” he adds.

Some market participants are tentatively supportive of the introduction of a multi-utility regulator. SES Business Water managing director Giuseppe Di Vita says the company would back consideration of a multi-utility regulator for both the energy and business water market, “providing any change is aimed at delivering consistency across utilities whilst ensuring continuity for consumers and suppliers”. He says that, whilst there may be common challenges across energy and water, there are “significant differences” in other areas, although he insists that any multi-utility regulator would “still need to retain specialism in each marketplace to be effective”.

Anglian Water Business managing director Bob Wilson agrees that multi-utility offerings have been increasing recently and says the trend is “here to stay”. “To this end, we don’t rule out the possibility of a multi-utility regulator being created in future.”

However, not all market participants agree a multi-utility regulator would be the best solution, primarily because of the differences between the energy and water sectors. Everflow customer services director Josh Gill says he is “not convinced” it would work for price-setting as the methodology used for both markets is “inevitably going to be completely different”. “There are significantly different risks and opportunities in each sector: energy and water.”

Waterscan managing director Neil Pendle says that, while there are some benefits from a single utility regulator, particularly around the common customer-facing activities such as switching and billing, there are also “significant differences” in the way the water sector is regulated and how the market operates. “It makes a great deal of sense for the regulators to work together and agree some common ground which would give consistency to the customer experience across utility service providers,” he tells Utility Week. “But there is no evidence that a single regulator would deliver better results at this stage.”

Castle Water, which has been active in the Scottish market for some time, insists comparison between regulators is needed to keep the pressure on them to perform well. The company’s chief executive John Reynolds says: “Regulators need to have pressure on them through the ability of regulated companies and government to compare their performance, and therefore I’d be opposed to creating a super-regulator.” He did, however, suggest one single regulator may work in a region like Scotland, which is smaller economically – similar to the Utility Regulator in Northern Ireland, which regulates the electricity, gas and water sectors. “I think there would be a really interesting argument for a super-regulator in Scotland, which you could compare the performance of with the separate regulators in England,” he says. “And you could add rail in that as well if you wanted to.”

Ofwat says the future structure of regulation “remains a question for government”, which is currently bound by the rules of purdah and unable to make any announcements until the general election on 8 June.

Before a decision can be made on whether a multi-utility regulator should be created, the water market needs to be allowed to settle down. There are already lots of new systems and processes for companies to get to grips with, and NWG Business managing director Lucy Darch insists companies need to understand the strategy for the household market – another decision which will now not be announced until after the purdah period. “In time one regulator may be optimal, if the water market fully deregulates and it would be more cost-effective,” says Darch. “But we would see the timeline as after 2020.”

Regulator collaboration

The United Kingdom Regulators Network (UKRN) is a member organisation formed of 13 of the UK’s sectoral regulators. It was launched in March 2014. The UKRN says it aims to “encourage and build upon a culture of collaboration” across the network. It does this through a programme of work which seeks out opportunities for cooperation between members in a “flexible and efficient way”.

Members of the UKRN are:

• the Civil Aviation Authority (CAA)
• the Financial Conduct Authority (FCA)
• the Office of Communications (Ofcom)
• the Office of Gas and Electricity Markets (Ofgem)
• the Office of Water Regulation (Ofwat)
• the Office of Rail Regulation (ORR)
• the Utility Regulator
• Monitor and the Water Industry Commission for Scotland (WICS) are also participating as observers.