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

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The Systems Regulation Model

February 12, 2019

Regulation Publication

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...

Publications

  • Presentation Regulation Utility regulation, the Regulatory Asset Base and the Cost of Capital
    May 6, 2009

    Competition Commission Spring Lecture 2009
  • 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 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 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 Regulation OXREP Special edition on regulation
    June 1, 2006

    Oxford Review of Economic Policy, special edition on regulation, summer 2006
  • Publication Regulation Ownership Utility Regulation and Financial Structures: an Emerging Model
    January 14, 2006

    Recent corporate activity and the emergence of highly geared companies in the utility and infrastructure sectors have raised fundamental questions about risk, returns and the appropriate responses from investors and regulators. A gradual revolution has be
  • Publication Regulation The Case for Regulatory Reform
    July 31, 2005

    In D. Helm (ed.), The Future of Infrastructure Regulation, published by Oxera, July 2005, pp. 1-9. It is tempting to think that, after two decades of experience, regulation might have moved from the controversial and novel, to the tried and tested, that c
  • Publication Regulation The new regulatory agenda
    January 1, 2004

    Published by the Social Market Foundation, January 2004. Regulation in Britain has grown gradually and continuously since the privatisations of the 1980s and 1990s. Its growth has been unplanned, but has now reached a critical mass, attracting widespread

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