Water exit U-turn is a landmark decision

Two significant things happened in the world of utilities this week – one expected, one not. In the energy arena, Ofgem made the long-awaited referral of the retail market to the Competition and Markets Authority. The fact that this has been welcomed by many within the market as well as by its critics is symptomatic of just how bad things have got. It is hoped it will take some of the political heat out of the debate and serve to clear the air in time for sensible policy decisions to be taken after the 2015 election. You can read our analysis of the announcement and sector reaction on p14.

The inquiry will inevitably raise questions about the performance of Ofgem itself. Indeed, the regulator could find it is on trial as much as the companies are. After all, the very act of referring the market to the CMA is an admission of defeat when your job is to police the market. The likelihood of Ofgem surviving 2015 intact is looking ever slimmer: if and when recommending a replacement, the CMA should have an eye to the networks. It would be a shame if the competent management of the network sector were thrown out alongside the less adept handling of retail.
The government’s U-turn on letting incumbents exit the non-domestic water market once it opens up to competition in 2017 received virtually no attention compared with the blanket coverage of the energy referral. Yet in its own way, letting companies decide whether they want to stay in the market or not is a landmark decision and a victory for common sense. It is rare that companies are united with politicians, the regulator and prospective market entrants in their support of a measure, but the retail exit was that rare moment. It was illogical of the government to refuse to amend the Water Bill in the face of such united opposition (some of which came from within its own party), and increasingly difficult for ministers to defend. Water minister Dan Rogerson should be commended for listening, and if this is the first result of his influence at Defra, it bodes well. Karma Ockenden’s expert view is on p7 and our full analysis on p19.