Energy companies will have nowhere to hide

It’ll be sink or swim time for energy companies once the roles and responsibilities of government, regulator and industry are more clearly defined.

Regulators are one of the most important stakeholders that companies have to deal with. They grant businesses the licence to operate.

Either companies comply with regulations and benefit from a positive relationship or fail to comply and can face extra scrutiny, financial penalties, bad press and in extreme cases, enforced closure.

Regulators’ decisions can also influence other stakeholders. Through their role of codifying behavioural expectations via policy or regulation, they establish a framework of expectation for other stakeholder groups, including investors, customers and analysts.

Therefore, any change to regulatory policy or a change to the interaction between government, regulator and companies will necessarily involve a recalibration of different stakeholder groups’ expectations of company performance.

This is the scenario facing energy companies in the wake of the Department of Energy and Climate Change’s (Decc‘s) recent final report on its review of Ofgem. Originally, Ofgem’s main responsibility was to regulate the energy market to ensure there was a level playing field for all participants. This role has since expanded vastly to include delivery of a number of government social and low-carbon policy initiatives. The Decc review left Ofgem relatively unscathed but found it needed a clearer role and more defined goals.

This is likely to lead to a recalibration of stakeholder relationships and expectations. The government’s main aims are to more clearly define its policy objectives, set out company obligations to help achieve these objectives and redefine the regulator’s role to make sure they do.

This should be a welcome development for utilities. Where previously their roles and responsibilities, and those of their regulator and government, were sometimes unclear, the new regulatory regime should give them certainty. Energy companies that take advantage of this transparency should be able to enhance their reputations by operating successfully against clear performance criteria. There will be little chance to hide behind a lack of clarity or misunderstanding, or obfuscate behind greenwash.

This article was written by Alastair Pickering, Research and Operations Director at Alva and released in full on Utility Week.