No ‘simple answer’ to what successful regulation looks like

There is no “simple answer” to what successful regulation looks like, according to Ofwat’s chief executive Rachel Fletcher.

Speaking as part of a panel debate about the topic at Utility Week’s Congress event in Birmingham earlier this week, Fletcher described the past year as “incredibly eventful” for utilities.

“As regulators we are wound up in the overall system. There clearly is not a simple answer to the question,” she said, describing it as a “pertinent” one.

The country has witnessed “impassioned debates” around the legitimacy of public utilities, how they are being run and, in whose interests, Fletcher explained.

“I think it’s absolutely right that we all stand back – regulators and companies alike – and stop and think about what success really looks like.”

Fletcher said the starting point for answering the question should focus on customers instead of regulation.

“When it comes to the provision of an essential service like water people do care about corporate behaviours, about dividends, about executive pay. They care about whether the company is providing a social and environmental benefit as well.”

She suggested that successful regulation involves using the “tools and influence” regulators have to help address such broader concerns.

“That involves us stepping beyond the narrow remit originally designed for so-called economic regulators,” she said.

But she warned regulators will need to “tread carefully” to ensure independence is preserved.

Although she argued there is “no formula” for success, she suggested successful regulation involves “learning from experience and mistakes, learning from others, trying new tools and partnerships and being open-minded and listening to criticisms from others.”

Fletcher’s counterpart at the energy regulator Ofgem, Dermot Nolan, questioned whether a successful regulator is one that is “known or not known – in the news or not in the news”. He also explained people differ in opinion on whether the regulator’s success should be determined by how often its action leads to a court case.

He said he can see a situation in the future where decisions “considered controversial” will be challenged by different parts of the industry.

“I don’t think any regulator is that well known, which is interesting.  However, there is more recognition of the regulatory system,” he suggested.

Nolan said: “A very basic answer is that a successful regulator is one that protects consumers both in the short and the long term. It’s very easy to say but much harder to do,” he conceded.

“In the utilities sector trust and confidence has not been as high as we would have liked in the last few years.”

Nolan also discussed how the narrative of regulation has changed over the years and how it is no longer deemed “acceptable” for people to pay significantly different prices for the same goods.

“In my view it’s one of the reasons that has led to the price cap and why Citizens Advice made a super complaint to the Competition and Markets Authority about the whole issue of loyalty.

“At some level as an industry and perhaps as the regulatory body we did not perceive this traditional model as enough of an issue to intervene.”

He argued a regulator must be independent but also “aware of the public mood”.

Jenny Pyper, chief executive of Utility Regulator, which is responsible for regulating the electricity, gas, water and sewerage industries in Northern Ireland, added: “Change is not just coming, it’s here.”

She argued the importance of being more agile and the need to embrace change to avoid playing catch up.

The National Infrastructure Commission has been tasked with carrying out a review into the regulation of utilities.