Parliament should take a “more active role” in the oversight of utility regulators, the Global Infrastructure Investor Association (GIIA) has urged in a new report.
Entitled ‘Regulation for Investment’, the report said the UK’s post-privatisation regulatory regime has been “highly successful” in achieving its objectives over many years but more recently has been found “wanting”.
“The absence of a government-led long-term plan for the utility sectors has created a vacuum for regulators,” it explained. “They have often had to act without the necessary strategic direction and democratic mandate to make difficult choices.”
The report outlined a series of recommendations for improving the UK’s utility regulation framework.
As part of a broader set of proposed reforms of institutional structures, Parliament should take a “more active role” overseeing the regulators’ work, said the GIIA, which represents a wide range of pension funds and other institutional investors.
It suggested that “relevant” committees in both the House of Commons and and House of Lords should have the necessary remits and resources to scrutinise the work of the regulators.
The committees should hold regular evidence sessions and set out “well-defined” reporting requirements for regulators, which should be vetted against refreshed duties and Strategic Policy Statements, according to the GIIA.
The report said the government should ensure that all regulators have an SPS, including Ofgem, where this is not currently the case.
Furthermore, the government should issue a cross-sector SPS to ensure consistency where shared challenges exist like cost of capital assessments and customer vulnerability. Regulatory duties should be aligned across sectors and simplified where possible, the report added.
The sector-specific SPSs should continue to be refreshed a once every Parliament but with a “clear link” from one document to the next in order to ensure consistency.
The government should explore whether the remit and responsibilities of the UK Regulators Network should be upgraded and the body placed on a on a statutory footing with the “necessary resources” to ensure consistency across different sectors.
Regulators should adopt measurable targets and be subject to regular requirements to report against these to ensure greater “political and democratic accountability”, the report said, citing the Financial Conduct Authority’s Strategic Plan as a potential model.
The balance of regulatory frameworks should shift from short-term bills towards increased investment, aligned with each sector’s long-term infrastructure plan, it said: “Regulators should take a permissive stance towards investment – including anticipatory investment. They should recognise that the risks of inaction are now substantial and outweigh the relatively small risks of asset stranding.”
In particular, the report said, regulators should permit anticipatory investment if it is in the interests of consumer and citizens.
Regulators should roll back existing prescriptive regulation, such as on financial structures, unless it is strictly necessary to protect consumers or drive efficiency. However, the report said that in some areas, like retail energy, intervention on financial structures may be the only way to protect consumers.
The GIIA also urged the government to make use of its post-Brexit regulatory flexibility to review barriers to data sharing and pooling so that a cross-sectoral database of customers in vulnerable situations can be built.
Working with the Information Commissioners Office, this would enable companies to target support accurately to customers when they need it.