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Provisions for Gas, Electricity, and Water Markets - Report Example

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This paper "Provisions for Gas, Electricity, and Water Markets" focuses on the fact that 30 years ago, the consensus was those network utilities, such as gas, electricity, and water were essentially natural monopolies where the competition was neither feasible nor desirable. …
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Provisions for Gas, Electricity, and Water Markets
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Download file to see previous pages The traditional regulation relied on the static concept of competition in which the perfectly competitive markets are in equilibrium and, when that equilibrium is disturbed, move to equilibrium. This traditional approach has been eschewed in most of the British privatised utilities. However, it has a crucial problem. It requires the would-be regulator to identify the outcome of a perfectly competitive market which is impossible therefore the approach has no firm anchor and leads on to arbitrary regulation (on opinions).

At the time of privatisation, the traditional approach was already in some disrepute and the founding fathers of British regulation were searching for another anchor and, in particular, a means of regulation that would embody better efficiency incentives. And so the new approach was to start a process of `entrepreneurial discovery. Where perfection was neither the aim nor achieving equilibrium. If a regulator can start the competitive process in a market previously monopolised, even though he or she cannot predict the eventual result, the benign effects of competition can be expected. Because consumers can switch supplier, they enjoy more protection than a regulator can provide and, on the supply side, there will be competitive rivalry, leading to innovation, cost reductions and pressure to pass on the benefits to consumers in terms of lower prices and better standards of service.

The new approach changed the face of regulation in energy and telecoms. But one British regulator – Ofwat – has in recent years followed a different course, not aiming exactly at the perfectly competitive outcome but using an approach in which the static concept of competition is clear. The market for very large water users was opened at the time of privatisation in 1989; then in 1998 the Competition Act seemed that it might bring some competition to the non-household market; and, most importantly, the 2003 Water Act set out a specific scheme to allow entry to the market for large users.  ...Download file to see next pagesRead More
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