Periodic Regulatory Review in UK Electricity Markets; Developments within a Deregulated System

Abstract

Our theme1 is regulatory review within a deregulated system — taking the UK electricity industry as a detailed case study. The implied contrast derives from the twin objectives imposed on all UK public utility regulatory offices2: (i) to regulate the industry so as to benefit consumers while ensuring the financial viability of the industry, and (ii) to foster competition wherever possible. We shall discover that competitive initiatives are suggested by the regulators as part of the regulatory review procedure. We need to be aware that the electricity industry, when privatised, was also demerged in such a way that potentially competitive activites were separated from the natural monopoly or network activities. In particular, four separate activites are conventionally identified in the UK3: generation, transmission, distribution, and supply. The last refers to the activity of selling electricity to final consumers on preset tariffs or metered half-hourly prices, where the price includes elements for generation, transmission and distribution. In other words the activity of supply requires no generating sets, or wires, merely a list of customers and a billing organization. Each part of the industry has its own set of agents, but only the single transmission company, (National Grid Company), and the distribution companies (12 Regional Electricity Companies) are subject to regulatory review. The regulator expresses opinions about the generating companies4, and may refer their behavior to the anti-trust investigatory body, the Monopolies and Mergers Commission, and he regulates the separate supply business of the distribution companies.