Great piece Adam. On the water industry troubles - I’d always taken the view that Ofwat’s interventions were flesh wounds; a few hundred million at best in voluntary returns. True they set the price controls more aggressively from PR19, but isn’t the fairer explanation that companies had pocketed the upside on cost of debt when capital cost nothing and then squealed when the downside materialised?
I think Ofwat's interventions were flesh wounds precisely because they didn't feel able to have the debate around the level of investment that the water sector actually required. Political steers were very much around keeping costs low and much less on environment and growth. This is a function of the 'not really independent' status of utility regulators.
The alternative explanation is that regulators are naturally conservative and would always refrain from recommending investment until it became absolutely clear that it was needed. This by itself is an inefficient way of delivering investment.
To riff on Q2 - Ofgem is ultimately the sum of its ‘people’ (capability to acquire and reason with information) plus its ‘tools’ (legal powers). Unfortunately, by design, it’s clearly the blind leading the blind over there, with an unthinking majority unable to properly think through information at all. Two structural failures have gutted the organisation: 1)inability to properly filter for relevant domain expertise (despite the increasing complexity of the sector) in staff recruitment because of asinine civil service ‘fairness’ rules; 2)inability to retain knowledgeable staff within teams because of no performance based progression options. Only way to get a decent raise is to job hop within the wider CS. This issue is compounded by the absence of a formalised internal knowledge management system!!
With this context it’s easier to understand why consumers and liberal democracy will pay for the buffoonery of Ofgem.
And obviously these structural failures are subsets of deeper internal contradictions of our capitalist economy which drive the very green Bonapartism we see with the expansion of Ofgem and Net Zero ;)
Great piece Adam. On the water industry troubles - I’d always taken the view that Ofwat’s interventions were flesh wounds; a few hundred million at best in voluntary returns. True they set the price controls more aggressively from PR19, but isn’t the fairer explanation that companies had pocketed the upside on cost of debt when capital cost nothing and then squealed when the downside materialised?
I think Ofwat's interventions were flesh wounds precisely because they didn't feel able to have the debate around the level of investment that the water sector actually required. Political steers were very much around keeping costs low and much less on environment and growth. This is a function of the 'not really independent' status of utility regulators.
The alternative explanation is that regulators are naturally conservative and would always refrain from recommending investment until it became absolutely clear that it was needed. This by itself is an inefficient way of delivering investment.
Ah yes that’s fair. Incentives combine to both ensure we don’t get the investment needed and the return on the investment we do get is excessive
To riff on Q2 - Ofgem is ultimately the sum of its ‘people’ (capability to acquire and reason with information) plus its ‘tools’ (legal powers). Unfortunately, by design, it’s clearly the blind leading the blind over there, with an unthinking majority unable to properly think through information at all. Two structural failures have gutted the organisation: 1)inability to properly filter for relevant domain expertise (despite the increasing complexity of the sector) in staff recruitment because of asinine civil service ‘fairness’ rules; 2)inability to retain knowledgeable staff within teams because of no performance based progression options. Only way to get a decent raise is to job hop within the wider CS. This issue is compounded by the absence of a formalised internal knowledge management system!!
With this context it’s easier to understand why consumers and liberal democracy will pay for the buffoonery of Ofgem.
And obviously these structural failures are subsets of deeper internal contradictions of our capitalist economy which drive the very green Bonapartism we see with the expansion of Ofgem and Net Zero ;)
Very much agreed on the first para - see https://unbalancingmechanism.substack.com/p/the-spiders-of-whitehall?r=27blkc