Regulation and the Privatised Electricity Supply Industry

Abstract

On March 31, 1990 a new structure for the Electricity Supply Industry (ESI) in Great Britain was established under the Electricity Act 1989, and by the licences issued under it. This new structure marks a radical departure from its predecessor, dominated by public corporations. In England and Wales, under the Electricity Acts 1947 and 1957, the industry was effectively divided into two distinct spheres of activities: on the one hand, generation and transmission, which were the responsibility of the Central Electricity Generating Board (CEGB)'; and on the other hand, distribution and supply, which were the remit of the twelve Area Boards.2 The Government had attempted to inject some private competition into the industry by allowing private generation and supply,3 and, recognising that the transmission and distribution systems were public monopolies, by allowing third party access to the CEGB national transmission grid and the local distribution systems under the Energy Act 1983.4 However, by 1990 only one company had taken advantage of the opportunity to take a bulk supply of electricity from other than a public corporation.5 The ESI, like other utilities, is an essential industry, whose structure is usually a combination of monopoly and non-monopoly elements. It has a number of market and technical characteristics which give rise to market failures, and to some degree of government intervention: its transmission and distribution networks are natural monopolies; there is a lack of cross-elasticity of demand, and it has large and dedicated infrastructure; potentially there are spatially differentiated prices, and so on.6 In the past one could point to some degree of regulatory failure to achieve control or additional competition.7 It has been argued that many of the previous inadequacies of the United Kingdom's ESI could be attributed not so much to the question of ownership, but to the inadequacy of the regulatory framework within the public sector.8 The Government, however, argued during the entire privatisation debate,9 that in fact it was the integrated structure of generation and trans-