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 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

  • Publication Regulation The Good Behaviour Clause Inquiry
    July 13, 2000

    Paper for the Competition Commission. The 'good behaviour' clause adds another substantive layer of sector regulation to the electricity industry, at a time when significant structural changes are taking place, when NETA is being introduced, and when the
  • Publication Regulation Comments on ' A Fair deal for consumer: Modernising the Framework for Utility regulation
    May 25, 2000

    Paper for the DTI. This brief paper focuses on the scope of the draft guidance and the impact on the cost of capital. It does not address the detailed components.
  • Publication Regulation Regulatory Reform, Capture and the regulatory Burden. OXREP Vol. 22 No.2
    May 24, 2000

    It has become a conventional wisdom that regulation is at best a necessary evil and at worst an inhibition to productivity, employment, and economic growth. There are strident demands, predominantly from industrial interests, for the 'regulatory burden' t

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