Regulation, regulation, regulation

Ofgem’s ‘tough new framework’ – hot on the heels of Ofwat’s recent call for ‘profound changes’ – signals the end of a golden era of UK regulated investment.

The Overton window is one of the most interesting concepts in political theory. Developed by Joseph P. Overton, a former vice-president of the Mackinac Center for Public Policy, in the mid-1990s, it basically refers to the range of policies voters will find acceptable. Once you know what falls within the Overton window, the prize is to try to shift it towards the policies you champion.

Take the idea of an energy price cap. When former Labour leader Ed Miliband first proposed it prior to the 2015 UK elections, the incumbent prime minister, Conservative leader David Cameron, and large swaths of the media branded it a dangerous Marxist policy and a sign of Labour’s increasing hard-left radicalisation.

‘Red Ed’ was always an improbable label for Milliband, but you could argue it fits like a glove his successor, current Labour leader Jeremy Corbyn. Funnily enough, though, it isn’t ‘Red Jez’ who is legislating a de facto energy price cap – it’s Prime Minister Theresa May, a Conservative… and that is when you know the Overton penny has dropped.

It’s in that context that Ofgem chairman Dermot Nolan’s latest broadside at the energy industry, published in the Financial Times, should be read. Promising a “tough new regulatory framework” for energy companies, Nolan said Ofgem is “outlining price controls that include the lowest allowed network equity costs we have ever proposed”. Adding that the regulator “is also proposing to refine how it sets the cost of debt so that consumers continue to benefit from the fall in interest rates” (a somewhat odd statement considering rates are largely expected to start going up).

To be fair, Nolan admitted consumers have largely benefitted from the current regime, but his warning to the UK’s private energy providers is clear: while some companies have outperformed, reaping their just rewards, others have largely benefitted from a historical low-interest-rate environment.

To make matters worse, some of these ‘interest-rate huggers’ are refusing to share their bounty with consumers, with Nolan naming and shaming two of the offenders – Northern Gas and Wales and West Utilities, both owned by billionaire Li Ka-Shing’s Cheung Kong Infrastructure, though the former also counts Australia’s State Super as a shareholder.

That Nolan’s warning comes hot on the heels of Ofwat’s December call for “profound changes” in the way private water companies operate is no accident. After telling UK water providers to drop their cost of capital to a record low, the water watchdog exhorted them to be “more efficient and innovative than ever before”.

This was always the big risk of the opposition Labour Party’s incessant calls for nationalisation. As Martin Stanley, Macquarie Infrastructure and Real Assets’ global head, conceded in our March keynote interview: “The real question is whether you are creating an environment that could lead to a situation where the regulator destroys longer-term shareholder value.”

That environment is, arguably, already materialising. And that is when you know the golden age of UK regulated infrastructure investment has passed.

See you in Berlin

Now, banish all thoughts of a Mad Marxist dystopia because it is time to head to Berlin. Our annual Global Summit, held from 20-22 March, has long been the premier event of the infrastructure season. That’s largely down to you, the industry: you fly from all over the world to attend; you send your top people; and you take part in our panel discussions with real vim and vigour – once again, we thank you warmly.

This year promises to be better than ever, with a line-up of top speakers (click here for the full agenda) and more than 1,600 attendees networking their hearts out at the Hilton.

I, for one, am already looking forward to being immersed in the ‘Berlin bubble’ next week.

See you there.