NIC calls for resilience stress tests for utilities

Regulators must ensure that future price reviews for water and energy companies are “consistent” with new government standards to improve resilience against shock events, the National Infrastructure Commission (NIC) has recommended.

In a new report, Anticipate, React, Recover: Resilient Infrastructure Systems, published today (28 May), the NIC has issued a suite of recommendations designed to improve the UK’s resilience to major disruptions such as last August’s power outage.

This includes a suggestion that energy and water infrastructure operators should develop and maintain strategies to ensure they meet new resilience standards.

Regulators should set out in future price reviews how their determinations are “consistent” with meeting these resilience standards.

Incorporating this measure into the price review process is designed to ensure that clear standards are laid down so that companies will not attempt to undercut one another by avoiding investment in resilience.

The NIC has also recommended the introduction of a resilience stress test regime for utilities, such as that which operates in the financial services.

Regulators should require a system of regular stress testing by 2024 for energy and water infrastructure operators, alongside other key utilities.

This should include a requirement by regulators that companies participate in stress tests and to carry out remedial action if they fail. This obligation should be introduced by 2023, according to the report.

The stress tests would be designed to ensure that infrastructure operators’ systems and decision-making can “credibly” meet resilience standards for infrastructure services.

The energy, water, and digital regulators should all have duties to promote resilience by the end of next year as part of which they advise on the costs and benefits of different standards.

The government should introduce a statutory requirement by 2022 for secretaries of state to publish “clear, proportionate and realistic” standards every five years for the resilience of energy, water, digital, road and rail services.

Regulators should introduce obligations by 2023 on infrastructure operators to meet these standards, which it says should help to guard regulators or infrastructure operators against the risk of failing to anticipate or prepare effectively predictable events.

These standards should allow regulators to drive infrastructure companies to improve levels of resilience where required, according to the report.

The commission warns that the UK’s generally robust historic resilience may be challenged in future by a range of factors that will not always be possible to foresee, alongside better understood challenges like climate change.

John Armitt, chair of the commission, said: “The commission pays tribute to all those who are helping to minimise the impact to infrastructure during this period, often at significant personal risk.

“While this report draws on evidence collected before the pandemic, this study can inform thinking about the recovery and help ensure that we can be resilient to future challenges.

“To safeguard the systems our communities rely on, everyone involved in running infrastructure needs to anticipate and prepare for potential future challenges. The framework proposed in our report offers the tools to face uncomfortable truths, value resilience properly, test for vulnerabilities and drive adaptation before it is too late.”