Regulators create ‘presumption against utilities’, says Armitt

Sir John Armitt, chair of the National Infrastructure Commission (NIC), which has been tasked with carrying out a review into the regulation of utilities, said the very existence of regulators creates a “natural presumption against utilities”.

Speaking at Utility Week’s Congress event in Birmingham today (10 October), he said: “One of the difficulties in the whole regulated sector is that the very existence of the regulator infers that there is a need for a policeman to hold to account, or if necessary arrest the offenders – who are the utility companies.

“That creates an environment in which there is a natural presumption against utilities.”

He added: “Without naming names one or two have perhaps shot themselves in the foot in recent times… and we now have Labour threatening nationalisation and 65 per cent of the public thinking that’s a good thing. Personally, I don’t agree with that.”

Armitt said that he believes the role of the regulator should be one of a “facilitator” – the person in the middle of customers and suppliers.

The NIC has been instructed by the Treasury to carry out a regulation study to determine if the current model is fit for purpose.

The review was announced at a fringe meeting at the Conservative party conference last week. Further details were revealed shortly afterwards by the NIC.

It will examine what “future changes may be on the horizon” for water, energy and the telecoms industries as set out in its National Infrastructure Assessment (NIA).

The review will consider whether the current regulatory model “encourages sufficient innovation” to address the changes and how regulators are “currently working across sectors on cross-cutting challenges.”

In his speech about meeting the UK’s future infrastructure needs, Armitt said: “As we examine all of this, we will keep a watchful eye on ensuring that bills are kept affordable, and vulnerable customers are protected.

“We will want to hear from you – the regulators and the industry – to hear your experiences, and your views of how the current system is working and how it may be improved.”

He added: “This will complement the National Infrastructure Assessment and help make sure that it can be delivered.

“Together, they have the potential to offer the best chance we have to increase infrastructure investment and set the conditions to make sure that every pound goes further.

“And on top of that, they have the potential for the UK to be a world-leader in these fields, using the latest technologies while continuing to deliver for customers and communities.”

In a panel discussion after his talk, Armitt, said: “The challenge we all face in utilities is how do we get this discussion, this debate [investing in resilience and infrastructure] out into the open in a more constructive way.

“How do we persuade the politicians that there is more to regulation than simply is it the lowest possible cost?” he questioned.

He said: “We need to ensure resilience, so people can have the facilities when they need them and pay a fair price.”

Responding to a question about the possibility of a move to a multi-utility regulatory approach, Armitt referenced the engineering sector which has spent the last 50 years talking about having one engineering institution.

He said: “And if we did, we would then promptly create four or five sub-divisions to go back to what we had before.

“That’s what I would suspect would happen with regulation. If we had a multi-focused regulatory system, equally inevitably it would have to have within it those specialised levels that really understood the function of each sector.”

“It would give you perhaps some benefit in that we would then be looking at the totality of the cost to the consumer and whether in fact we could start to balance those,” he added.

But he said it’s a valid debate to have. “My gut instinct is that we would finish up still with some levels of separation,” he concluded.

Armitt also announced the NIC will be carrying out another study over the next 12-months on resilience.

The NIC is currently in discussion with the Treasury about it, he explained.

“The advantage of us doing that is it binds Treasury into what we produce. If we went off and did it ourselves without having the Treasury on board… it makes it easier for them to walk away from it afterwards.

“Whereas if it’s something we agree is worth doing and there are questions to be answered, we stand more chance of binding them to the recommendations.”

During a debate on the future regulation of utilities at Utility Week Congress the previous day those regulators present accepted that there were examples of a single regulator model working in other countries. However, Ofwat chief executive Rachel Fletcher pointed out the key question was less about whether there were fewer or more regulators, and more about how to answer some of the huge future challenges ahead.