Utilities Bill is over-interventionist

The committee stage of the government?s Utilities Bill is now well underway. The Bill is designed to update utilities regulation and ? to the extent it does this ? it is receiving full support from the opposition. We agree with the need to reform the electricity pool, to merge the regulation of gas and electricity, and we support the separation of licensing for distribution and supply.

But we have difficulties with the Bill?s adoption of a new over-interventionist approach. When utilities were privatised they retained much of their monopoly status, so the regulator was introduced to prevent the consumer from being forced to pay monopoly prices. The combination of moving these companies into the private sector with its cost disciplines, of gradually increasing competition and the role of the regulators in the non-competitive areas, resulted in prices for the consumer falling by 30% in real terms in gas and electricity and by 50% in telecom. In addition, all these sectors have become innovative, offering greater choices for the consumer.

The approach in the Utilities Bill is different and involves using the regulator to provide protection for the consumer, even when it is clear that a particular sector or part of a sector is fully exposed to competition and a competitive market has emerged. The Bill envisages using the regulators to deliver the government?s social and environmental objectives.

Although the government?s intentions are well motivated the outcome will ultimately be harmful to the consumer. The higher costs of regulation and potential for huge new social obligations to be imposed on utilities will result in higher costs for companies, which will inevitably be passed on to the public.

In addition, the regulators are to be given powers to impose unlimited fines on companies which, given the new Competition Act can impose fines of up to 30% of a company?s turnover, could be crippling. The huge potential for such intervention raises the ?regulatory risk? faced by the utility companies, which in turn will raise their cost of capital. Given the very capital-intensive nature of these industries this will impose large additional costs which, of course, will ultimately be borne by the consumer.

  • Nick Gibb is conservative MP for Bognor Regis

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