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. This applied to BT in 1984, as 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.

Latest Publication

money 2180330 1920

There is no money

May 18, 2020

Regulation Publication

As the full impacts of the lockdowns become painfully obvious, there is much talk of new stimuli and in particular green recovery plans.

Publications

  • Publication Regulation Thirty years after water privatization—is the English model the envy of the world?
    November 11, 2019

    The paper considers whether water privatization 30 years ago has delivered the promised superior performance to nationalization, which remains the dominant model in Europe.
  • Publication Regulation The Systems Regulation Model
    February 12, 2019

    There is widespread dissatisfaction with many of the privatised utilities. In the rail sector, despite gaining from much higher revenues from a doubling of demand and significantly higher real prices, performance has been subject to repeated criticisms...
  • Publication Regulation The Dividend Puzzle: what should utilities pay out?
    December 4, 2018

    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...
  • Publication Regulation RIP RPI-X Regulation - OFWAT and OFGEM nail down the coffin
    April 17, 2018

    RPI-X regulation has had a good run. It was a deceptively simple idea: fix the prices and leave everything else to the companies and the markets to sort out how best to maximise profits by minimising costs. That simplicity was its great strength...
  • Publication Regulation Policy by lists – the Green Paper and the new industrial strategy
    March 17, 2017

    Regulation grows. It is never reaches a stable equilibrium. There are always more things that politicians, regulators and the multiple vested interests want to do. These include new duties and responsibilities, new incentives, and most of all new spend...
  • Publication Regulation Regulatory Reform and The System Operator Model
    January 10, 2017

    Regulation grows. It is never reaches a stable equilibrium. There are always more things that politicians, regulators and the multiple vested interests want to do. These include new duties and responsibilities, new incentives, and most of all new ...
  • Publication Regulation Do we need any more periodic reviews?
    December 12, 2016

    As the regulators and the utilities gear themselves up for the next round of periodic reviews around 2020, one question which is rarely considered is: do we need any more periodic reviews? Most regulatory regimes around the world don’t have them, and...
  • Publication Regulation Water regulation - what's next?
    November 10, 2016

    As the next periodic review of the water industry (PR19) approaches, government and regulators are going through the usual “reform” process. The temptation to meddle is just too great to resist, and this time there are some good reasons for change...
  • Presentation Regulation Policy and Regulation for Utilities: Where do we go from here?
    March 15, 2016

    Presentation for Future of Utilities Conference
  • Publication Regulation Regulatory credibility and the irresistible urge to meddle
    April 16, 2015

    When the great utilities were being privatised, one of the key objectives was to establish a regulatory regime which would be credible to investors and fair to customers. The way it worked was that the companies would be given fixed contracts ex ante, and
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