MP calls for network-only water regulation and stepped up competition in the rest

Sectoral regulators, including Ofwat, should be stripped back to deal only with core network monopolies, with those responsibilities ultimately transferred to the Competition and Markets Authority (CMA) according to a recent report from John Penrose MP published last week.

Penrose (pictured), goes on to propose deploying competitive forces.to erode network monopolies.

The report, Power to the people, scrutinises consumer and competition policy post Brexit and mid pandemic. And Penrose prescribes a programme of pro-consumer competition and red tape reduction for water and other regulated industries.

Penrose proposals

Penrose called for economic regulation to be stripped back to deal only with regulated network assets, with all other company activities becoming “a normally-competitive industry, with high standards, strong competition and consumer powers, and low regulatory and political risks”. This should be effected by a requirement on each economic regulator to “publish and execute a multi-year project plan, to turn as much of their sector into a ‘normal’ pro-consumer, high-standards competitive market as possible. As the plan progresses, the sector regulator should formally hand over responsibility for more and more of its sector to CMA…so they are progressively left with a smaller and smaller piece of less-competitive activity centred on the industry’s core network monopoly.”

He proposed that sector regulators should have a mandate to erode the power of the network monopolies they continue to regulate, by making pro-competitive interventions, such as encouraging more data sharing, or reducing barriers to new entrants. This should include auctioning contracts to build and upgrade network monopoly infrastructure “rather than handing them to the incumbent monopoly owners”.

Sector regulators should, according to Penrose, publish workload figures annually and, in each year that economic regulation forms less than half of its activity, the regulator’s chair should write a public letter to the CMA’s minister explaining whether its residual economic regulation duties should be transferred to a new Network and Data Monopolies Unit at the CMA or not. Further, consumer groups that hold legal "supercomplaint" powers should have the power to trigger a formal public request to ministers to table the statutory motion to transfer the economic regulatory responsibilities to CMA, as should companies if more than half of the regulated firms in a sector (by revenue) write a joint open letter to the same effect.

All sector regulators’ legal duties should be amended so they all have “a strong, clear ‘competition for the benefit of consumers first, regulation only as a last resort’ primary legal duty,” he said.

And all sectoral regulation should be subject to the “Brexit dividend, better-regulation target” which requires shifting from the regime’s current "one-in-one-out" target on regulation to "one-in- two-out" and reinstating the "gateway condition’"so regulators must first remove or modernise old rules before they can introduce new ones.

The cross-sector Penrose report was commissioned in September 2020 to look at the role of boosting competition and consumer powers in Covid recovery, levelling up, increasing trust, supporting market disruptors and making the best use of data, technology and digital.