Six out of 10 CEOs have no confidence in regulator

Nearly two-thirds of CEOs across the utilities spectrum say their regulatory regime is not fit for purpose. This figure of 64 per cent leaps to 100 per cent amongst energy retailers, energy generators and non-domestic water retailers, and to 75 per cent among domestic water wholesalers, according the findings of Utility Week’s annual CEO Insight research this year carried out in association with Economic Insight.

The two sectors with greater confidence in their regulators are gas networks (where 80 per cent believe they are fit for purpose) and power networks (71 per cent) and this acceptance is mirrored in their response to new frameworks coming down the tracks. CEOs in the power and gas sectors were asked about the RIIO2 price control framework and period, and views were largely aligned.

They were broadly supportive of Ofgem’s initial framework plans, when asked if the plans appropriately reflect the changes and challenges facing UK energy networks. This is in contrast to the general disgruntlement among the water companies, who have submitted business plans in preparation for PR19.

Questioned about PR19, Ofwat’s price methodology proposals for the 2020-2025 regulatory period, water wholesaler CEOs were uniformly critical of every aspect of the proposals.

Asked if Ofwat’s proposal for reforming dividend policy are fair and proportionate, 25 per cent disagreed strongly and 50 per cent disagreed somewhat. The other 25 per cent have yet to make up their minds.

This year, 24 CEOs contributed to the research carried out in April for Utility Week by independent market research company Insight Advantage, up from 21 in 2017. To add commentary to the survey responses, Utility Week also sought out qualitative comment from a range of chief executives.

Survey respondents gave a range of reasons why they thought the regimes were not fit for purpose.

These included statements describing regulation has “too intrusive, drives wrong behaviours, needs more radical approach,” “lacking of an understanding of competition” and “too much political interference”.

However, a number of the CEOs who spoke to Utility Week to comment on the findings had a certain sympathy with their regulators, on the basis that they are “damned if they do and damned if they don’t”.

David Bird, CEO of Co-op Energy, said: “It’s certainly not the job of the regulator to have suppliers feeling content – if we all thought Ofgem was great, then they are probably not doing the job properly”.

He adds, however: “I think regulatory frameworks will have to change soon to meet the challenges there are in the energy world. The regulator just needs to be more proactive, rather than reactive – they need to add value to consumers rather than just talk about price.”

Utility Week has serialised the report into five chapters.

WHAT’S IN THIS REPORT?

• Executive summary and key findings
• The macro-economic view
• Business model transformation
• Regulation
• Consumer perceptions and satisfaction