If there were ever any doubt about regulators' commitment to infrastructure, it was reassuring to hear Carolyn Ross – chief executive of UK water regulator Ofwat – describe it as “the arteries that allow economies to function”.
The speech, delivered at Infrastructure Investor's Berlin Summit 2015 in front of 700 delegates this week, was also comforting for other reasons. For one thing, Ross was keen to point out that although regulators' “number one priority is the right outcome for consumers”, this prioritisation “is not at odds with investors, which can deliver the outcomes consumers want”.
Since the Crisis, there has been murmuring in the investment community about whether some regulators are playing fair. With consumers feeling the pinch, have regulators gone too far in driving cheaper prices for end users at the expense of much-needed investment in infrastructure? The sense is that many fund managers operating in the regulated space would say 'yes'.
Indeed, Ofwat itself met with a less than enthusiastic response when publishing its final determination for the UK water sector towards the end of last year, which pushed up the cost of capital. However, although Ross conceded that the end result may not have been one investors were ecstatic about, she insisted that the dialogue between regulator and investors had been a positive one.
“We had over 400 conversations with investors and we were praised for our clarity – there were no surprises – and for our level of engagement.” In other words, you may not have liked the regulator's final decision, but at least you might acknowledge the benefit of having known what was coming.
One thing that cannot be disputed, and which both sides of the equation are increasingly vocal about, is the need for a good relationship between regulator and investor. This is likely to be one focus – among many others – of the Global Infrastructure Investor Association, the new industry body launched last week. Furthermore, the regulators themselves are coming together to share best practices and make sure that they operate in the most optimal way. Ross used her presentation to draw attention to last year's formation of the UK Regulators Network. Chaired by Ross from next month, the network sees 11 UK regulators come together to share thoughts and ideas.
In recent times, a view which has gained some traction is that regulatory risk is not only growing in significance but is also increasingly indistinguishable from political risk. Ross was at pains to point out that the independence of UK regulation is enshrined in law.
This was just one of a number of welcome clarifications that can be provided when investors and a regulator find themselves in the same room.