New Thinking: Looking at the NIC Regulatory Review

Looking at the NIC Regulatory Review

Catherine Mitchell – IGov Team, 22nd October, 2019

The NIC recently published its conclusions for its Regulatory Review. The EPG submitted evidence to the Review, and was also a member of the Challenge Panel. The Review explored whether the telecom, water and energy regulatory systems are able to deal with the current key challenges they face. It was therefore a high level Review of UK Regulation, rather than a review of the details of each regulatory system. Overall, IGov is pretty pleased with the NIC outcomes.

The Report makes clear:

The importance for all regulators, but particularly for energy, of the net zero by 2050 goal.
It argued that the regulatory ‘system does not need to be changed in its entirety but…does suggest major shifts in perspective’. This was not as much as we would have liked – we argued for a new institution – the Energy Transformation Commission – and then for a new role for Ofgem and the System Operator. The NIC effectively puts themselves forwards in IGov’s EST role but the NIC continued with Ofgem in the same role (see below), albeit with new Duties (see below).
It proposed Carbon Duties devolved to Regulators – as IGov had argued for.
It proposed that Regulators should have regard to the Government endorsed NIC recommendations (this is not far off what we argued an energy transformation commission should be doing. NIC clearly thinks this is what their role should be. IGov argues for a rather more hands on approach but it is useful that the NIC has picked up the need for a clear means of cascading policy through institutions).
It proposes a Strategic Policy Statements on Regulators at the start of each regulatory period so that Governments can be clearer about expected outcomes – which we called for.
They say the aim should NOT be as little regulation as possible – which we also support.
They also propose to separate out day to day maintenance costs of networks from transformation, thereby finding a way to pay for networks / transformation whilst at the same time creating a process to protect the vulnerable. This is a bit more complicated. We can see that this could work if it were linked into appropriate institutional change. The essential point is that potential negative distributional impacts of energy system transformation have to be confronted so that the vulnerable do not suffer those impacts. If a process for this is sorted out and paid for separately, then the costs of the energy system transformation could still fall on energy customers. IGov is indifferent to the means of paying for the transformation – on bills or through some outside mechanism – provided the distributional impacts don’t fall unfairly; the costs of paying for the transformation are not inflated unnecessarily by rate of returns hard wired into the process (ie like the Green Deal); and the means fits with the required institutional changes and regulatory mechanisms argued for within IGov.

You can read the full submission we made to the NIC Review here.