Letter from the Editor: Utilities must prove their legitimacy

Ofwat is playing hardball with the water companies - but for good reason, says Ellen Bennett

What’s the most important word in UK utilities today? Legitimacy. At the Utility Week Congress earlier this month, the chairmen of both Ofgem and Ofwat emphasised the need for monopoly utilities to be mindful of their legitimacy, at a time when public debate is focused on their very existence as privately held companies. Ofwat chief executive Cathryn Ross went further last week, excoriating water companies for “risking their own demise”, as The Times had it, by failing to deliver the regulator’s demands on cleaning up transparency, governance and complex financial structures.

What has prompted this focus on legitimacy? The answer is the rise of Labour leader Jeremy Corbyn, which has shifted the political narrative to the left and put nationalisation back on the agenda. But politicians don’t pluck issues out of a vacuum: Corbyn has tapped into public dissatisfaction with utilities, and the ongoing unease with the concept of private profits arising from a public utility. As Ross identified in her speech, it’s a sense that utilities are being run in the interests of their investors rather than their customers, a feeling that shady offshore companies are pocketing sky-high profits.

For some, Ross went too far. Her tub-thumping insistence that Labour’s nationalisation pledge is a “wake up call for even the hardest of hearing” is a long way from her usually more nuanced tone, and the regulator taking to the stage to publicly condemn the sector does little good to its public image. Cynics may suggest that as she prepares to step down, Ross is looking to her own legacy and reputation, mindful perhaps of the accusations of “spinelessness” being hurled at her opposite number at Ofgem, Dermot Nolan.

But that would be unfair. A close read of Ross’s speech tells of a regulator who is seriously shaken by the sharp swing of public debate; and is frustrated by the recalcitrant minority of water companies that still refuse to meet its demands (a key complaint in her speech: five or six of the 17 regulated water companies have yet to provide the regulator with requested long-term viability statements).

Ross may be playing to the gallery, but perhaps she has good reason to do so. The pressure coming from Ofwat seems to be working – Yorkshire Water, for example, has announced plans to end its offshore banking arrangements. And the tougher the regulator is seen to be, the less likely energy supply-style political intervention becomes. So water company executives frustrated with Ofwat’s increasingly combative style should perhaps ask themselves, would they rather answer to Cox and Ross, or Jeremy Corbyn and John McDonnell?