Final consumers will, in this new world, be protected largely by competition, backed up by general competition law and by fair trading regulation, not by price controls imposed by a sectoral regulator. Both the economics and politics of regulation of these intermediate markets tend to be very different from the economics and politics of regulation of final markets where the demand side is made up of very large numbers of very small buyers. Yet this function hardly makes an appearance in the text. We repeat here our oft-stated view that the formulation and implementation of social policy and of environmental policy should not lie with sectoral regulators in energy and telecoms. Just as business separation and unbundling have produced substantial benefits in the network industries themselves, so policy separation and unbundling are to be prefered to the accumulation of disparate powers and responsibilities by a single agency.
Separation improves focus, enhances transparency, and facilitates monitoring of performance.
We support the proposals for clarifying the responsibilities of ministers and regulators in these areas, but are concerned about the fuzziness of the proposed implementation of the principles involved. For example, in respect of social obligations, any decisions that involve adjustments of what are judged to be efficient, cost-reflective tariffs should lie with ministries, not regulators, and the resulting costs incurred should be borne by the taxpayer. Our view is that the issues raised by the Green Paper in respect of the form of the price control are largely second-order issues. RPI-X regulation involves a combination of judgments about regulatory asset values, the appropriate rate of return on these assets, and expected operating expenditures and capital expenditures. The distinctions required are generally extremely difficult to make, and they will almost inevitably be subject to challenge.