“Regulators have to continually change”: Views on the future of utility governance by former regulator Regina Finn

In the January issue of New Power Report, New Power’s editor, Janet Wood, spoke with Regina Finn, the new chair of the Low Carbon Contracts Company, about the many changes facing the power industry. Finn has been regulator and participant in utilities across several sectors. She discussed 

This is an extract from an interview in the January issue of New Power Report. Subscribers can read the full interview by clicking here and logging in. Not yet a subscriber? New Power is a specialist report for anyone with an interest in the UK energy industry. We look in-depth at all the issues that have to be addressed to rebuild our industry – moving from our centralised high-carbon power system to one that will provide heat and power securely, affordably and with minimal carbon dioxide emissions. Contact subscriptions@newpower.info to find out more.

It looks as though the policymaking structure may shift, with energy and potentially climate change back in its own department. Asked whether that would be an improvement, Finn says, “You can cut and paste government department any way you like, and people have seen it in so many different ways over the years, but you are just moving jigsaw pieces around. That’s not the important thing. The important thing is coordination across government.”

When I ask Finn’s view of another perennial question – whether there is still justification for sector regulators, as opposed to, say, a functional split with an infrastructure regulator and consumer champion – she says, “It doesn’t come back to the institutions, it comes back to their co-ordination and remits. One thing I used to say at Ofwat [as chief executive] is that we’re an economic regulator but we’re here for customers.” She thinks Ofgem is waking up to the net zero climate change being part of the wider framework within which it has to operate.

“I think regulators have evolved over the decades. In the purest days of Stephen Littlechild they were very much about opening up markets and regulating the bits that can’t be opened up and that was all –  everything else is government or social policy. I think we have moved a long way from that and we should live a long way from that, because regulatory frameworks cannot exist in a separate policy environment …

“I remember at Ofwat having a board that was nervous about me saying that climate change was real. So, things have changed, and I think regulators have to continually change and reassess their role in that.”

Regulators have already changed to consider outcomes, not just markets, and now she says they need to consider Net Zero and the climate change emergency and how we operate within that.

And as for a consumer regulator, when I ask about changing needs, for example in pan-utility ‘home services’, she says, “I don’t think it’s acceptable for any existing regulator not to have a very strong focus and remit around that consumer side of their role, so I just see that as the day job.”

That should evolve too. For example in telecoms, “What I thought was a good consumer outcome 10 years ago is very different from what I think it is now. My expectations have changed. Ofcom is good at that: they track consumer outcomes and consumer sentiment and how it changes over time. Other regulators are maybe not so good.”

She warns that “If you as an infrastructure regulator don’t have to internalise that any more I think you take it away from the economic regulator to include consumer outcomes in everything that it does. There is a risk of that.”

Similarly, there is a danger in separating environment. “When I joined Ofwat there was constant fighting between the economic regulator and the environment regulator because they both saw themselves a different remit. I put a lot of effort into changing that – hence the strapline for the regulator changed to ‘sustainable water’ – because I thought we are not separate we are additive we need to deliver both a decent environment and affordability for customers.

“There was an attitude that they had to be separate to call out each other and that’s not very constructive. It is not in the Environment Agency’s interest that water or energy becomes unaffordable to the degree that good environmental outcomes cannot be paid for.”

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