Some notes about Regulation

The British regulatory model is an evolving one. It started out as a reaction against both the nationalised industry controls, and the perceived failures of US rate of return regulation. In the mid 1980s, the zeitgeist was one of markets, liberalisation, competition and private ownership. RPI-X was invented as a deliberately simple and temporary way to mimic the market, but only for so long as it took for competition to do away with the need for regulation at all. This applied to BT in 1984, it was expected to wither away after 7 years.

In practice it has gradually morphed into a detailed and permanent set of interventions for the core monopoly infrastructures. Regulation now controls price and outputs, and it has developed techniques to address the asset bases, the cost of capital, the operating efficiency and capital expenditure.

Regulation, built in this piecemeal way, has become heterogeneous. Each regulator has followed a specific path. OFGEM pioneered RIIO, with 8-year periods, whilst OFWAT sticks to 5. OFGEM has indexed the cost of debt, OFWAT has not. ORR has had to accommodate a much greater role for the state, whilst OFCOM has struggled with the emerging USO for broadband. Large infrastructure projects have attracted their own unique contractual frameworks. Hence the detail matters, as is explored in each part below.

 

Regulation

Regulation
Transport

Regulation
Communications

Regulation
Infrastructure

Regulation
Regulation

Latest Publication

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The Dividend Puzzle: what should utilities pay out?

December 4, 2018

Regulation Publication

Why does Centrica yield 9.3% and SSE 8.4%, whilst DRAX yields 3.2%? Why do United Utilities, Severn Trent and Pennon yield respectively 5.0%, 4.8% and 4.4%, and National Grid 5.8%, whilst BT yields 6.0% (all at the end of November 2018)? Why are they...

Publications

  • Presentation Regulation Critical infrastructure and utility regulation: a joined-up approach
    April 29, 2009

    Presentation given to Royal United Services Institute conference April 29th 2009
  • Presentation Regulation Regulatory reform, capture and the regulatory burden
    November 24, 2008

    DTI/BRE Conference - Evaluation of Regulation
  • Publication Regulation Special administration, financing functions and utility regulation
    October 23, 2008

    Recent events have sharpened interest in the question of what happens when key businesses get into difficulty. In the banking sector, governments and regulators have had to make it up as they go along. The lack of preparation for failure has been...
  • Publication Infrastructure Meeting the infrastructure challenge
    May 30, 2008

    Infrastructure matters in a way that most investments do not: it is complementary to the rest of the economy; and competitiveness depends upon it. This article examines the scale of the infrastructure challenge and the roles of governments and the privat
  • Publication Infrastructure Utility regulation and critical national infrastructure
    April 15, 2008

    Paper in a publication released to coincide with the RUSI conference on Protecting the Critical National Infrastructure
  • Publication Communications The future of the BBC
    February 28, 2008

    BBC Trust seminar on the economic impact of the BBC
  • Publication Regulation Tradeable RABs and the split cost of capital
    January 2, 2008

    Whilst regulators have resisted the concept of the split cost of capital, financial markets have been applying its logic with enthusiasm. The recent takeover of Norweb with a reported 45% premium to the regulated capital value (RCV) takes the...
  • Publication Infrastructure It's not over yet: the implications of the credit crunch
    October 29, 2007

    2007 will go down in economic history as a roller-coaster – it’s not often that we see a global credit crunch which requires over half a trillion dollars to stabilise, and a run on a major London bank. The former occurs roughly every quarter of a century,
  • Publication Regulation Real Interest and the Return to Normalcy
    July 25, 2007

    What drives markets in the end are fundamentals, and few variables are as important as the real interest rate—the return, after inflation, on relatively risk-less assets. It determines one part of the return on savings, and it feeds through into the relat
  • Publication Transport Reforming Airport Regulation
    June 11, 2007

    The current debate about the future of airport regulation in the UK has arisen for a variety of reasons, which have together built up a substantive case for reform. In addition to the customer and airline complaints on the quality of service, the takeover

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