Are regulators really too political?

Ever since Theresa May’s election pledge in 2017 to tackle “rip-off” energy bills, it’s felt increasingly hard to separate the latest political rhetoric from events playing out in the regulation sphere.

The following year saw Michael Gove, then environment secretary, launch a searing attack on water bosses at their own City conference. Get your house in order and give customers a better deal, he warned, or he would not hesitate to strengthen their regulator’s powers to enforce a new regime.

Then, this weekend, the issue of the policy-regulatory divide – or lack thereof – cranked up again with revelations in a Sunday newspaper that industry investors had complained to the Treasury that Ofwat was becoming “politicised”.

Seasoned utilities-watchers will recognise the claim as one increasingly muttered over recent months at energy and water industry gatherings. But that the “p” word has now been levelled quite so openly at the water regulator feels significant.

The past few years have been bruising ones for relationships between regulators and utility providers. From the price cap, to the crackdown on water finance models and the cost of capital, there has been little love lost.

At Utility Week’s New Deal Debate, Ofwat chair Jonson Cox, while careful to stress the importance of investors, was robust about the direction of travel when it came to regulation. He made no apology for “pushing hard to encourage and, where need be, to compel the water industry to reinvent itself”.

Meanwhile, at Utility Week Congress earlier this month, Ofgem boss Dermot Nolan was unapologetic about how the energy cap’s impact could see more firms “obliterated from the face of the Earth”.

Regulators will argue their independence all day long – that their decisions are driven by what’s best for the consumer, and increasingly the environment.

But while the charge of regulatory politicisation feels significant, is it really so surprising?

As the government’s policy encroachments into energy and its calls on net zero have shown, it’s impossible to regulate a sector with responsibility for delivering the fundamentals of social and economic existence in isolation.

Investors must recognise that in a sector providing a public ­service there is always the prospect of it becoming a political football.