Penrose: Private utility model ‘wobblier’ than in decades

The post-privatisation utility model is “wobblier” than it has been at any time since energy and water companies were taken out of public ownership three decades ago, Conservative MP John Penrose has warned.

In his opening keynote address at the Utility Week Forum in London on Tuesday (8 November), Penrose said that while the risk of outright renationalisation has “not gone away”, the likelihood of it happening has diminished since it was included in Labour’s 2019 general election.

However, Penrose, who led the campaign by backbench MPs for the introduction of the energy price cap in 2017, expressed concern that the private utilities model looks “wobblier” than in years and risks being “hollowed out” by a “reassertion of state control through regulation and an agenda of ever-increasing levels of regulation”.

Calls for regulatory intervention “every time something goes wrong”, like sewage discharges or problems restoring power following storms, play into this agenda, he said.

Ever increasing levels of interference by regulators and politicians would fuel the uncertainty utility companies face, with knock on consequences in terms of higher borrowing costs for investment, Penrose said: “When we’re talking about industries where we’re investing for 15 to 25 and sometimes many more years, you can do without someone like me moving the goalposts.”

The Somerset MP, who also conducted a review of economic regulation for the government earlier this year, said the number of statutory duties in the utilities’ strategy and policy statements should be slimmed down to no more than four.

Equipping regulators with too many duties means they will “do what the hell they like or what the politicians tell them” because they can pick and choose between them, he explained: “We need to simplify and refocus those statutory duties very, very dramatically.”

Penrose also raised concerns that the Department for Business, Energy and Industrial Strategy is not taking forward its Review of Electricity Market Arrangements, which it has recently concluded consulting on, with sufficient urgency after being told in a written Parliamentary answer that the exercise would not be completed until 2025.

“We can’t afford to wait,” he remarked. “We should be publishing the thing now and then we should be putting the results into the energy bill tomorrow in order to make these changes.

“This is perfectly rescuable but we need to do something about it and fast because the way we are going at the moment, we are drifting on to ever thinner ice. It can be fixed but we need to be comprehensive and we need to be absolutely crystal clear what’s going to happen next.”

Marzia Zafar, deputy director of strategy and decarbonisation at Ofgem, insisted in a subsequent panel session on regulation that the energy watchdog’s upcoming retail market review would continue to encourage innovation in suppliers.

She said: “We are not discouraging competition and innovation: those are the basis of the energy market going forward.

“We want to have a healthy supplier market, whether that’s six, eight, 20 or 30 suppliers.”