The chief executives of both Ofgem and Ofwat have indicated they will be flexible over compliance as utilities battle unprecedented challenges from the coronavirus spread.
Jonathan Brearley said the energy regulator would take a “pragmatic” view to rule-bending in areas where it led to the protection of vital services. He said companies should “not be afraid to do the right thing for their customers”.
Rachel Fletcher struck a similar tone saying “for the avoidance of doubt” that incentives and penalties “should not get in the way of effective prioritisation in the interests of customers”. She stressed that water companies did not need to “wait for our approval before implementing prioritised working arrangements”. The regulator will consider the need for any ex post adjustments to the regulatory system following an assessment.
However, observers said the measures may not be enough to assuage the concerns of management teams. One source said Ofgem’s position was similar to the “band playing on the deck of the Titanic” and urged more concrete assurances.
Meanwhile, a figure close the water sector said it was a big ask for companies to take this position “on faith”.
In a blog, Brearley said that he expected companies to prioritise customer and staff safety. However, he added: “Essential repairs in people’s homes will need to continue, so energy companies need to have plans in place for how they will do this while managing risk to their staff.” He specifically referenced meter repairs but not the smart meter rollout.
He insisted he was “aware that our regulatory processes place resource requirements on energy companies” saying that Ofgem would be mindful that any burdens placed on energy companies did not compromise the priorities to maintain services and protect the public.
In her letter to chief executives, Fletcher also raised the plight of business retailers, saying before the end of the week Ofwat and market operator, MOSL, would be setting out actions to protect customers.
In the meantime, she urged wholesalers to adopt “a reasonable and pragmatic approach to the collection of wholesale charges from retailers who may be facing difficulties in obtaining payment from their customers.”
Responding to her letter, one source told Utility Week: “This seems to pretty accurately reflect the powers that Ofwat has at the moment. If they were seen as a disruption to vital services they would be hit from all sides.
“The companies will welcome this but when you’re running a multi-billion pound businesses and you’re being asked to take it basically on faith that you won’t get hit by heavy penalties for what you do in the next few months, that probably seems pretty unsatisfactory.
“It’s raises huge questions about AMP7 before it’s even started. You would expect that Ofwat is going to have to use significant re-openers.”
On the energy side, one observer said that while Ofgem could express its enthusiasm for a light-touch approach, this was practically impossible in the run-up to new price controls.
They said: “The regulator simply has no choice to be pragmatic in a situation like this.
“But the sense I get is that the mindset is not changing quick. There is an element of the band playing on the deck of the Titanic.
“I think there’s still a bit of denial that the RIIO-2 process has to adapt, just as everything else does.
“Much of what Ofgem does is driven by government and that will probably be increasingly the case under Jonathan because he comes from that background. So, when the government’s attitude in many areas is ‘keep calm and carry on until we tell you’ that is reflected by Ofgem. You see that in the lack of movement on the smart meter rollout. At some point Ofgem is going to need to take decisive action and at the moment they are only inching towards that.”
One source who has experience of both energy and water said it was no surprise the comments had come out within hours of each other.
They said: “I would be amazed if they didn’t compare notes. And the conversation will have gone something along the lines of – what else can we do?
“The regulators are facing a huge challenge of their own. They are economic regulators who have taken years to get on board with the environmental and social side of their role – particularly Ofwat. Now there is a sense they are standing aghast at what is happening in front, desperately trying to work out where they fit in.”