Regulating utilities and promoting competition: lessons for the future

Citation

Bhattacharyya, S.C. (2007), "Regulating utilities and promoting competition: lessons for the future", International Journal of Energy Sector Management, Vol. 1 No. 1, pp. 109-111. https://doi.org/10.1108/17506220710738632

This volume contains the edited version of papers presented in the Beesley Lectures in the autumn of 2004 organised by the Institute of Economic Affairs where prominent UK regulators and academics presented the papers on various aspects of regulatory practices. While this raises the expectations, any such edited volume of conference presentations has a few limitations. First, the topicality of the topics of discussion is a function of time and their importance may not reduce over time. Second, the topics may be specific to a particular region or area and may have little appeal to the others. Third, it is often difficult to maintain the quality and uniformity of the papers. This volume is no exception. The papers in the volume mainly deal with the UK experience (except one which focuses on the regulation in developing countries and two others which partly focus on competition aspects of EU regulations). This UK‐centric nature of the volume is not reflected in the title which is somewhat misleading, as it conveys a more generic appeal to the readers. Most of the papers assume the readers to have general understanding of the background of the issues being discussed. This is a demanding assumption when the volume covers a wide spectrum of the regulated entities (rail, broadcasting, telecom, electric, and gas) and a wide range of areas (competition, mergers, acquisitions, dominant position, access, etc.). Consequently, the reader without a clear understanding of the issues or contexts would find the volume inaccessible. The sequencing and choice of papers for the edited volume rests with the editor. It is unclear why a comment to a paper was included while the paper itself has gone missing. How could the comment serve any purpose in the absence of the original paper? Similarly, the logic of sequencing the chapters is not apparent as there is no progression of thematic ideas from one chapter to another. The quality of the papers varies significantly as well – some are just recounts of personal experiences without much academic inclination while others are well written academic papers. Consequently, the volume has its appeal and weaknesses.

There are nine chapters in the volume (actually eight chapters and a comment). Each chapter (except as noted above) presents a paper followed by a discussion of the paper by a discussant. The first chapter on railway regulation appears to be the weakest link in the volume where the ex‐regulator essentially spelt out his grievances against the state intervention the railway regulation during his time in office. Many regulators often find themselves in such situations of interference, especially in developing countries (where the interference takes various forms including that from the outside agencies and donors) but few would perhaps pay attention. The pressure can be high on regulators where the utility is non‐performing. This paper provides an account how the regulator negotiated with such a situation but the academic content is rather limited. The paper reads like an unattractive personal account and the choice of the editor to use it as the opening chapter is baffling.

Luckily for the readers the next two chapters are more entertaining. Chapter 2 deals with the role of gas trade in the transition of the UK from a self‐sufficient gas producer to a net importer. The paper analyses the prospects of the UK participating in the international gas trade to meet its domestic demand‐supply gap. The role of gas market deregulation in the continental Europe, its influence on the UK prospects and the challenges facing UK to ensure future gas supply are the issues covered in this paper. Chapter 3 analyses the economics and politics of wind power in the UK. The author questions the economic viability of wind power and explains how the growth in this segment has been achieved through the renewable obligations, climate change levy and higher tariffs to consumers. The paper questions the sustainability of the wind power programme because of its limited effect on the CO₂ emission reduction, additional pollution from the back‐up power and the high cost of stand‐by power. The paper argues that the ineffective and costly policy is being followed because of the visible political signal and a nexus between the large private corporations and the government.

Chapter 4 presents the roles of the Competition Appeal Tribunal in the UK – that is to act as a referee, to try to get the law right, to help with the transparency and to engage in a dialogue to develop the regulatory system jointly. The paper indicates its role in terms of costs, economics and details. Once again, this is a personal account of a regulator which has limited academic content. This chapter could have been grouped with the first chapter to ensure similar style of presentation.

Chapter 5 presents the accounts of the Ofcom regulator of the UK. Contrary to the previous personal accounts, this chapter is much more economically oriented and contains useful materials of academic importance. The discussion on externalities of public broadcasts and the attempt to fix charges in accordance with the externality issue is well presented. The issues related to bottleneck facility in the telecommunication (identification, access and separation of the competitive markets) are also covered in this chapter.

Chapters 6 and 7 have similarities in terms of coverage. Chapter 6 discusses the way regulators have interpreted the abuse of a dominant position while Chapter 7 discusses the role of economics in merger decisions taken by the regulators. Both the chapters argue that while economic rationale and justification plays an increasingly important role in the Commission decisions, often it is not possible to perform the detailed cost‐benefit analyses or apply the latest economic theories in the regulatory decisions.

Chapter 8 contains the comments on a paper related to merger and competition in the water industry. As indicated earlier, in absence of the paper the comments do not serve any purpose and it would have been better to drop it from the volume.

The final chapter (Chapter 9) provides a review of privatisation and regulation in developing countries. The paper criticises the trend of transferring the developed country regulation models to the developing countries without analysing the regulatory governance capacities and argues in favour rate of return regulation in developing countries. It also calls for more systematic use of regulatory impact assessments (RIA). However, as the discussant has pointed out, this suggestion does not appear to be in line with the arguments advanced in the paper as even in developed countries RIA is not systematically used.

Overall, the book is not an impressive collection of papers. The book would have some appeal to those interested in regulation in the UK and in competition policies. Anyone interested in energy alone would find three relatively well written chapters (Chapters 2, 3 and 9). It would have limited appeal to those interested in a basic understanding of the regulation and competition issues.