Regulation in the Water Industry: Neglecting the Need for Review – Alan Thomson

As part of our research agenda on regulation and regulatory affairs, we spoke with the brilliant Alan Thomson on the topic of regulation, in the context of the water industry specifically. Named one of the top 25 global leaders by Water and Waste International in 2016, Alan has significant experience at a senior level as a client, consultant and contractor and over 35 years experience in the water industry across the UK and Abu Dhabi. Alan is the current Managing Director of Abu Dhabi Sewerage Services Company (ADSSC), and a former Regional Director at Mouchel Parkman. In recent years, Alan has not only been responsible for the development and modernisation of the wastewater infrastructure in the Emirate, which will ensure adequate collection capacity for future growth, but has led the integration of various regulations into ADSSC, with positive results.
In your opinion, who does regulation concern?
Regulation in the water industry was introduced to primarily protect the customers. Regulations can also provide a guide to capital investment with respect to improving customer service e.g. reducing flooding frequency. Regulations also give a benchmark for measuring performance across the industry, though there are still fundamental differences between the companies due to topography, customer demographics, etc.
Why do regulations matter, and why for public utilities?
The competitive element in utilities is far from a true competitive framework and regulation helps to engineer a new environment in which pseudo competition can happen. The natural monopolies of the companies mean that cross competition is not feasible and regulation should help avoid excessive charges and poor service by providing comparative metrics. It is important that the infrastructure is maintained for long-term operation and investment should reflect the needs and avoid profiteering. The water companies can still make very good returns and arguably this would be best put back into infrastructure improvement and not shareholders. Privatisation does not always equate to efficiency, Scottish water started later than the rest of the UK and is competing in performance despite it being a publicly owned company. Much of the UK asset base is now owned by foreign shareholders and this may have an impact on their ownership approach.
In light of your experience across the UK and Abu Dhabi in the water industry, do you think the current global context throws up new challenges for regulators and/or regulation?
Abu Dhabi is a very different environment from the UK. Despite this gap, the regulatory framework is not dissimilar and the publicly owned assets in Abu Dhabi are now under close scrutiny economically. Although we are a fully subsidised service at the moment, we are still required to follow the same economic regulation as the UK. We are not competing with any other utility and the penalties are only impacting on our ability to provide a good service.
Do you have any recommendations on how policymakers or regulators could overcome these challenges?
Regulations should be flexible to reflect their environment both technically and economically. The multicultural society and communication within this area should recognise the different needs and expectations. Drafts should be fully consultative with all interested parties involved and listened to in their suggestions for improvement.
Is there a shared need for regulatory reform or modernisation, and if not, who should this concern? 
Variation between countries means that sharing could be difficult, but not impossible. Standards and expectations would require to be normalised or rationalised to make sense.
Do you see any differences in the way jurisdictions are tackling old and emerging problems and how effective do you view these different approaches? 
In my experience the need to review regulations has been largely ignored. The regulations in Abu Dhabi are not best suited to our environment with highly subsidised charges and public ownership. The long-term nature of the infrastructure clashes with the relatively short 5 year review period. This can lead to behaviour of the company which may not be best for the customer. Regulations need to reflect the changing environments and should be bespoke to their origins.
How do you think regulatory review and/or reform may be of benefit?
By reflecting commercial and technical reality the regulations would be much more beneficial, rather than adversarial.
What can those implementing reform do to ensure that this leads to both long-term and short-term improvements?
Ensure that broad, meaningful consultation is undertaken on a regular basis. The need to understand the problems at a customer level as well as the frustrations of the operating companies is essential to gain maximum benefits. Both parties will have a different view but ultimately it is necessary to listen and reconcile to move forward in a productive manner.
Which aspects of regulation/regulatory monitoring and oversight do you believe require greater attention?
Consultation, long-term investment, innovation and collaboration.
What would your advice be to those managing or leading regulatory reform/change in their organisations?  
Provide channels where reform ideas can be fed back to decision makers. This would allow better value judgements to be made in the long-term interest of the customer. Regulators are set in their ways and do not always see the bigger picture whereby simple actions can save a lot of money whilst improving standards. Some changes would be incremental but other areas will need radical changes to maximise benefits for the customers.
Enjoy this article?
Read our interview with ex-civil servant and academic professional Julius Sen here. Alternatively, for insights from UK ex-civil servant and management and leadership professional, Mark Dean, click here .

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