Utility Week/Accent’s latest senior executive panel survey – which quizzes top energy and water personnel on a hot topic every other month – reveals a dismal picture of an industry either overtly lacking confidence in those who govern it or confused and full of uncertainty.
Executives were asked how much confidence they has in Ofgem, Ofwat, the Department for Environment, Food and Rural Affairs (Defra) and the Department of Energy and Climate Change (Decc). Of these, only Defra registered a respectable performance: 58 per cent of panellists said they had a “reasonable amount” of confidence in Defra, while just under a quarter said they didn’t have much or any confidence.
Ofgem inspired the least confidence of the four organisations. Just 12 per cent of respondents said they had a “reasonable amount” of confidence in the energy regulator, while 50 per cent had little or none. Results are shown in table 1.
Respondents were also asked whether they thought the wider energy and water industry had confidence in each of the four bodies. The energy sector result was dire. Not a single respondent said either Ofgem or Decc had the confidence of the energy industry. Ofwat’s result was also dismal: only 4 per cent said the water industry had confidence in the economic regulator. Again, Defra performed best: around a quarter said water had confidence in it (see table 2).
Perhaps some of the greater confidence shown in Defra is attributable to greater consistency and stability perceived there, compared with the other bodies. Respondents were asked if their confidence level in each body had changed over time. Only 15 per cent said “yes” in relation to Defra. The equivalent figure was higher at 23 per cent for the other government body, Decc. But far heftier proportions of panellists had altered their confidence levels over time in each of the regulators: 42 per cent for Ofgem and a whopping 62 per cent for Ofwat.
Some of this was change for the better – for instance, one executive said of Ofgem: “There have been improvements. For example, its revisited proposal on Retail Market Review.” But there was clear and extreme concern over the direction of travel elsewhere – particularly at Ofwat. One executive said: “Ofwat has historically been regarded as a good regulator using a sound approach applied in a professional and defendable way. It has contributed significantly to the stability and reputation of the industry. All of this has been put at risk in recent months and years, there is a growing fear that the pace of change will lead to poor mechanisms and unintended and unwanted consequences.”
So what would give our senior industry figures more confidence in those who regulate and govern them? For Ofwat, answers ranged from quicker decision-making to greater openness about thinking and improving its efficiency and delivery. One executive stated: “The water industry is very nervous because there is so much uncertainty about the future price-setting process as well as how licence modification has been handled. It’s a lot of change in a very short period and there is the feeling that it’s being rushed through without really knowing what the consequences will be.”
On Ofgem, one executive said they would have more confidence if: “It took a more holistic view of the market. For example, trying to promote innovation across the value chain instead of just networks. Focusing competition on customer bills rather than tariffs.” Another felt confidence would be higher if Ofgem had “more regulatory restraint on price increases and more fulsome engagement with consumers on the need for price rises”.
Respondents’ confidence in Defra would be boosted, among other things, by more engagement – a regular newsletter was specifically mentioned. For Decc, one executive felt it could make: “Bigger, bolder decisions about demand and have a more joined-up approach to heat and electricity.” Another suggested “being clear on how carbon reduction is going to happen and why the solutions are the most cost-effective way of doing this”.
Rob Sheldon, managing director at Accent, said the research was intended to be constructive for government and regulators: “There are varied opinions about each regulatory body and hopefully this has provided some observations which the regulators can take away and build upon.”
Quote… unquote
Some of the positive and negative comments from the panel about specific industry regulators.
On Defra:
“It is now addressing the major environmental policy issues regarding the regulated monopolists in the Water Bill and abstraction reforms (such as trading, abstraction incentives mechanism and pricing) and working on the prevailing incentives to arrive at more efficient and effective solutions.”
“I am not convinced that it understands the water industry.”
On Ofgem:
“While Ofgem has no doubt improved over the past few years there is still a real concern over its approach to some aspects of work. It takes a very long time to get things done.”
“It promotes its mandate reasonably well.”
On Ofwat:
“My confidence in what Ofwat is doing has definitely reduced in the past year or two. There are some very knowledgeable people at Ofwat. However, there are two dangers that I perceive. First, a lack of engineering expertise, so key people do not understand the workings of water companies and make decisions based on economic criteria. Second, too much change in a very short time. In particular, there is much talk about customer engagement, but comparative regulation is harder now than it was two years ago, as there is much less information and data in the public domain.”
“Ten years ago under the Byatt regime, Ofwat exercised micro-control of the water industry, and the periodic review was very detailed and labour intensive. Since then it has realised the need for smarter, less intensive reviews, and the need to address incentives. It has also been willing to acknowledge and address long-term, unsustainable problems with existing systems … but I am not sure how well they will be able to follow through these good ideas in the face of severe constraints on bill increases.”
Decc:
“It seems to employ people who know what they are doing. Lots of industry secondments, which gives confidence in their ability to do their job.”
” seems to be internal division at ministerial level and no joined-up strategy with energy policy becoming increasingly politicised.”
This article first appeared in Utility Week’s print edition of 15th February 2013.
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