Evolving regulations in utilities: why adaptability is key

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The utilities sector is facing some major regulatory changes – and providers need to be prepared to adapt their plans fast. Data will be key to their success.

With so many business-as-usual processes to worry about, it can be difficult for utilities providers to see new regulations as anything other than a disruptive challenge. Every new requirement can have a major impact on how utilities operate, from backend processes to service delivery.

In the UK, gas, electricity and water are all on the cusp of – or already experiencing – massive regulatory shifts. There are three significant regulation changes: the ongoing introduction of smart metering, Ofwat’s AMP7, and Ofgem’s RIIO-2.

The next five years will be crucial as providers innovate and adapt to meet new requirements. AMP7 begins in 2020, RIIO-2 comes into force in 2021, and the smart meter rollout deadline was recently extended to 2024.

Time is getting short for providers to make the required changes to their operations, and as they build out their plans, it’s vital that customer concerns don’t get left behind. So how do providers balance a complex regulatory structure with their responsibilities to customers?

The future of utilities regulation

In October 2018, the UK government requested a study from the National Infrastructure Commission, aimed at understanding how the utilities industry’s regulation structure needs to adapt over the next few years – and the level of investment that will require.

The final report, published on 11th October 2019, paints a potentially difficult picture for the sector. The UK’s regulation model is “facing new challenges it was not designed to address”, and this carries a real risk of undermining public and political confidence in the industry – as well as getting in the way of investment and innovation.

There are also concerns around the effect of Brexit. With much of the UK’s utilities regulation framework based on EU laws, the government is having to make alterations to established laws to ensure everything still works effectively in the event of a no-deal withdrawal. As the Brexit situation evolves, providers need to be confident their plans are flexible enough to adjust.

Much of the burden of adapting this outdated and EU-dependent structure falls on the government and industry regulators. However, most of this work won’t be done before the next raft of new regulations, so providers need to ensure their own strategies work within the confines of the existing structure. But that doesn’t mean the structure won’t change in the near-future – and that means providers need to be prepared.

Strategic plans are always a long time in the making – and that can make it difficult to adjust them as needed when the circumstances change. The most successful strategies for regulatory change will be the ones that have flexible aspects – an adaptable structure that can be changed readily.

Don’t let customers fall by the wayside

As a recent research report by Sustainability First highlights, the rigidity of utilities regulation can lead to a ‘square peg, round hole’ situation, where the inflexible requirements of regulations don’t accurately reflect and support the reality of consumer life.

The notion of an average customer – the baseline used to underpin regulations – is flawed. Everyone has different expectations for service delivery, value for money, sustainability, and more.

No two providers will be selling to exactly the same demographic. So, to create strategies that align with the rules as well as support effective service delivery for consumers, utilities providers need to understand their customers’ needs in depth, not just a general picture of the market.

It’s easy to lose sight of this as new regulations come into force, particularly as the next few years are dominated by environmental and sustainability concerns. RIIO-2, for example, is heavily focused on how gas and electricity providers can reduce their impact on the climate.

Data will be crucial to navigating new regulations

As you build and develop your strategies for the next set of utilities regulations, you’ll benefit hugely from putting your organisation’s data to work to understand who your customers are, what their priorities are, and how that fits with your regulatory responsibilities.

We explore how data factors into regulation changes – and other challenges and opportunities for the utilities sector – in our new white paper, Data: The key ingredient of utilities modernisation. Modernisation needs to be at the core of the industry in the coming years, and data is vital to that work.

Read the white paper now to dig into the role of data in utilities modernisation – and think about how you can put your data stores to work to make a real strategic difference in an ever-shifting regulatory environment.