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Coherence and stability in regulatory policy – Ofgem

Delivered as part of ‘Coherence and stability in regulatory practice’, Annual Westminster Conference 2014

April 25, 2014

Letters and Notes

UK renewables demonstration projects: who pulls the plug?

At the 2013 Beesley Lecture on climate change policy, David Kennedy, Chief Executive of
the Climate Change Commission (CCC), discussed the role of the Commission in providing
support for promising but not-yet-economic technologies. The last CCC budget report identified these technologies as: wind power (especially off-shore wind), tidal range, geothermal, solar and potentially CCS (carbon capture and storage). As described by David Kennedy, current CCC and government policy is to provide support for
these technologies until they can float off into commercial operation without government
support. But, what happens if they don’t successfully graduate? Who will pull the plug? When,
how and on what basis?

February 1, 2014

unrecognizable woman walking on pavement between old urban house facades

Documents

Dysfunctions in economic policymaking: simple stories, complex systems and corrupted economics

This essay is focused on ways in which complexity in economic systems is addressed in policymaking and in particular on the over-simplifications that frequently occur in assessments. In doing so it touches on a range of matters that are relevant to the central concern. These include the monopolistic nature of public decision making and the limitations that this entails, the tendency for private interests to achieve undue influence in the use of this market power, the induced subservience of economic reasoning to these interests (corrupted economics), and the institutional disorder that can be created as a result.
It is organised around three questions: Are there reasons to expect a systematic policymaking bias against giving due consideration to complexities and uncertainties in the evolution of economic systems? Does any such systematic bias matter much? If it does matter, can anything be done to improve policymaking performance?

January 1, 2014

New Series

The Customer Forum: customer engagement in the Scottish water sector

The Customer Forum was set up in September 2011 with three aims: to work with Scottish Water on a programme of customer research; in the light of this to understand and represent customer priorities to Scottish Water and to the Water Industry Commission for Scotland (WICS); and to seek to secure the most appropriate outcome for customers in the Strategic Review of Charges. In October 2012 the Forum was additionally asked to seek to agree a Business Plan with Scottish Water, consistent with Ministerial Objectives and with guidance notes that WICS would provide.

January 1, 2014

agricultural field under white clouds with electricity pylons in the distance

New Series

The competition assessment framework for the retail energy sector: some concerns about the proposed interpretation

Ofgem, OFT and CMA are presently carrying out “an assessment of how well competition in the markets for gas and electricity is serving the interests of households and small firms in Great Britain”. They intend to publish a first assessment by the end of March 2014. The outcome of Ofgem’s consumer research will follow in late spring. Ofgem, OFT and CMA will then each consider their next steps. All options remain open, including a market investigation reference.

January 1, 2014

Research Reports

Understanding barriers to entry, exit and changes to the structure of regulated legal firms: Summary and main conclusions

Entry, exit and firm restructuring are important aspects of the ability of any market to respond and adapt to changing circumstances. The capacity to respond and adapt relatively quickly – often referred to as flexibility – is important for the effective performance of a market, particularly in periods of substantial change.

The study is concerned chiefly with barriers to entry, exit and ‘mobility’ (which includes business restructuring such as a merger) that may be caused or exacerbated by regulatory requirements, with particular reference to the barriers facing small solicitors’ practices

December 31, 2013

Research Reports

Understanding barriers to entry, exit and changes to the structure of regulated legal firms: Full report

The Regulatory Policy Institute was commissioned by the Legal Services Board (LSB), supported by the Law Society, to undertake a study of possible barriers to (a) entry, (b) exit, and (c) changes in the business structures of regulated solicitors’ firms/practices in England and Wales; and the findings of this study are set out in what follows. The focus of the work is, as was requested, on small solicitors’ practices, with particular attention given to the consideration of barriers to change that might either be caused or exacerbated by current regulatory arrangements, or that might be amenable to reduction via modification of those arrangements.

December 31, 2013

Letters and Notes

Why airports can face price-elastic demand: margins, lumpiness and leveraged passenger losses

The extent to which firms face price-elastic demands for their products is important in the application of competition law and in judgments made as to whether they have significant market power. In the context of the airport industry1, assessing price-elasticities is complicated by the fact that one major type of consumer of airport services, the air passenger, is not charged directly for use of terminals and airside infrastructure2. Instead, the airport derives its revenues from charges to airlines and from the supply of non-aeronautical services. The charges to airlines then become one of many input costs that the airlines recoup from passenger fares, and this intermediation has significant implications for the demand analysis.

December 1, 2013

Letters and Notes

The impact of UK shale gas development on gas prices

At the final Beesley lecture of this year’s series, on reducing the costs of lowering carbon emissions, an old chestnut of an economic argument was raised, to the effect that UK shale gas production, even if it starts to happen in the relatively near future, “will not affect UK prices for many years to come because it will not be marginal supply for a long time yet.”
The context here is an interesting one: the main thesis of the lecture was that current policies of providing subsidies to favoured technologies had foreclosing or excluding effect on alternative approaches to decarbonisation, and that part of the exclusionary effect occurred by way of attempts to prevent the development of lines of analysis and reasoning that threatened the privileged policy narratives.

December 1, 2013

Documents

STREAMLINING REGULATORY AND COMPETITION APPEALS

In 2012, supported by a secretariat at the Commonwealth Department of Resources, Energy and
Tourism and by Dr Chris Decker, then of the Regulatory Policy Institute, Oxford, we conducted a
review for the Australian federal and state governments of the Limited Merits Review regime (the
“LMR”) in Australia for appeals of energy network decisions made by the relevant regulator. The
LMR regime had been introduced in 2008 with an intention to streamline appeals procedures. Our
Review extended over a six month period and was based upon: written submissions, mostly in
response to two ‘Issues Papers’ (consultation documents) that we published; an extensive series of
meetings we held with interested parties, including consumer representative bodies, companies,
regulators and government departments; detailed analysis of the substance of the individual cases
that had passed through the new system; a study of appeals systems in overseas jurisdictions; and a
study of the role and scope of Australian administrative tribunals in reviewing other types of
administrative decisions ‘on the merits’ . In consequence, we collected a considerable body of
evidence.

September 11, 2013

Letters and Notes

Security of electricity supply: is a Capacity Market the answer?

The Energy Bill, currently on its passage through Parliament following its inclusion in the Queen’s Speech, proposes a number of important changes to the UK energy market. Although the Bill contains several elements, its focus, notwithstanding its title, is on electricity rather than on other parts of the energy market. Within this narrower purview, electricity market reform (EMR) takes centre stage. In its introduction to this part of the Bill the Department of Energy and Climate Change (DECC) explains that the reforms are being put in place to attract £110 billion of investment which it claims is needed to replace generating capacity and upgrade the grid. Two key elements of EMR are the introduction of a system of contracts to support new nuclear and other lower carbon generation (the so-called contracts for differences, CfDs) and the development of a ‘Capacity Market’.2 It is with this latter element, the Capacity Market, that this paper is concerned.

June 1, 2013

Documents

Capture of independent sectoral regulators

Capture is an ever present risk to the benefits of independent sectoral regulation. The primary mode of capture may shift over time. Political ‘capture’, or undue influence, is a key current threat.
Conventionally, ‘capture’ is the tendency for regulators to take decisions that are biased in favour of the interests of the industry they regulate rather than the customers or wider society on whose behalf they regulate.

June 1, 2013

Documents

Is it possible to serve more than one master? Regulatory issues where there are multiple regulatory mechanisms

Where it is plainly in the public interest, there can be multiple regulatory mechanisms that do not imperil the independence of the regulator. To achieve the goal of alignment of achievement of shared objectives, protocols or MOUs, government guidance to independent regulators are often the most transparent and efficient way of promoting the interests of the consumer.

April 26, 2013

Documents