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 seven years.

In practice regulation has gradually morphed into a detailed and permanent set of interventions for the core monopoly infrastructures. It 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 eight-year periods, whilst OFWAT sticks to five-year ones. OFGEM has indexed the cost of debt. ORR has had to accommodate a much greater role for the state, whilst OFCOM has struggled with the emerging universal service obligation (USO) for broadband. Large infrastructure projects have attracted their own unique contractual frameworks. Hence the detail matters.

Latest Publication

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Luck is not an energy policy – the cost of energy, the price cap and what to do about it

December 6, 2021

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With energy prices set to rise even further, a look at how the recommendations from the 2017 Cost of Energy Review, if implemented at the time, could have prevented the current crisis.


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