Competition and regulation in the UK gas industry

Abstract

The decade since privatization has seen gas change from an integrated monopoly with no competition and without the structure necessary to encourage it, to an industry moving rapidly towards full competition. British Gas was privatized as an integrated monopoly; it had no regulation in the bulk market, and light regulation in the tariff market. Within 10 years it has lost more than half its bulk market, has voluntarily 'demerged' into a transportation and supply arm, and is leading the way in liberalization of the residential market. Some of these changes have been assisted by the particular circumstances of the gas market, especially the contracts which the incumbent has inherited. The Regulator is relying increasingly on prevention of undue discrimination for control of the dominant supplier, and this principle has been discussed and applied in a number of cases within the industry. Liberalization also raises important distributional issues, especially in the residential market.