This report is part of a three year project mapping the disruptive climate of risks and opportunities behind the case for public purpose orientated utilities and set out what companies need to do to move in this direction (and how progress can be measured).

The main body of the Report provides a detailed economic analysis of the issues concerning purpose, policy and regulation in utilities.1 We do not see this in any way as the last word and hope it will stimulate discussion and debate at a particularly important time for utilities regulation.

Chapter 1 provides a reminder of the ongoing rationale and need for economic regulation and policy intervention; explores the limitations of economic regulation and policy in terms of purpose; recaps the work Sustainability First have done on the case for public purpose in utilities and what this might mean in practice; and summarises the status quo in terms of legal and regulatory structures, building on the analysis carried out for Sustainability First by Slaughter and May.

Chapter 2 looks at the policy-regulation interface: the areas where clearer policy steers are needed to enable regulators to move towards a purposeful approach/support for purposeful businesses; and the structures for doing this, most notably duties and Strategic Policy Statements but also on occasion freestanding primary legislation. It then also considers ‘softer’ issues: the role of government/ministers in regulatory appointments and of ministerial statements as – either by accident or design – nudging regulatory approaches. It illustrates these issues with regard to three challenges:

1. creating a voice for the long term;
2. how to introduce the government’s place agenda into the utility sectors;
3. the approach to fuel and water poverty and vulnerability.

Chapter 3 looks at what purposeful regulation might mean, and what is required of regulators to facilitate purposeful companies, under a number of headings:

1. a)  ethical regulation, risk-based approaches, arms-length regulation;

2. b)  the role for consumers and stakeholders in purposeful regulation;

3. c)  intergenerational fairness, and how to regulate for the long term;

4. d)  how fixed term price reviews can move away from one-shot games and create flexibility and support purpose without undermining the need to address the fundamental market failures associated with monopolies;

5. e)  thecultureandgovernanceinregulators,andwhichregulatorsrequireofcompanies.

Chapter 4: full conclusions and recommendations.