In a keynote lecture on the future of independent economic regulation, Cathryn Ross, Chief Executive at Ofwat, has said that in competitive markets the regulator “may need to stay more involved than we might once have thought.”

Speaking at the London School of Economics, Centre for Analysis of Risk and Regulation last week, Ross said that while competition in the UK delivered via privatisation was originally intended to empower customers, “we now know a bit more about how utility markets work.”

While there are some products that really get customers excited and engaged – consumer goods for example – there are many others that are less exciting and public utilities tend to fall into the latter group. This was especially the case where the complexity of products and tariffs – possibly coupled with some bad experiences - just causes people to switch off.

However, while there was evidence to suggest that customers overall are better off as a result of competition, unsurprisingly those who don’t engage don’t get as good a deal as those who do, she said.

According to the Ofwat chief, there is “no doubt that the difference in the experience between those who engage and get the best deal, and those who don’t, is increasingly seen as unacceptable.”

Ross suggested to attendees that where there was competition in utility markets “maybe regulators should expect a little less from customers, and be more prepared to stay involved.” Regulators needed to pay close attention to the need to build customer trust in competitive markets and build their confidence to engage.

They also needed to keep an eye on whether markets are delivering for customers – not just on average but across different groups of customer. “And if they aren’t we will need – quite possibly working with government – to figure out whether that needs intervention,” she added.

Commenting on independent economic regulation in general, Ross said:

“The good news – at least if you are a regulator – is that I think independent economic regulation has a very bright future…. In short I see big opportunities for independent economic regulation to help build trust and confidence in public utilities.”

On the regulatory role in respect of companies, Ross commented:

“I think economic regulators need to be much more demanding of companies, in terms of expectations – not only on service and the customer experience more broadly but also on things like corporate governance and transparency– but demanding in a different way.”

Regulators needed to be clearer at the macro level about the immense responsibilities that companies and investors in the public service sector have, especially where they have the privilege of monopoly. However, they should be much less willing to step in at the micro-level and tell them exactly what to do and how to do it. Ross explained:

“ Because I have seen in water that micro-level intervention across a sector – while it might have been appropriate in the early years following privatisation – over time just infantilises the sector. Rather than provoking and challenging and holding to account, the regulator ends up providing a safety net for companies and that isn’t what we should be doing at all.”

The Ofwat Chief Executive also commented on the re-privatisation of utility companies which was raised as an issue at the recent General Election, saying:

“At some point we may have a government that wants to revisit the whole question of private provision of public utilities. We got rather closer to that in the last election than many thought we would. But even absent that, this shift in the public debate has given some regulators – us included – pause for thought.”

Click here to read the lecture in full