"Is Utility Regulation Failing Irish Consumers?", Special Article in the Quarterly Economic Commentary, Winter 2004.

December 21, 2004

News

21/12/2004

 

"Is Utility Regulation Failing Irish Consumers?", Special Article in the Quarterly Economic Commentary, Winter 2004.

By Patrick Massey – Director Compecon Limited.



Patrick Massey argues that current arrangements for regulating gas, electricity, telephone and postal charges is not working and radical reforms are required. Electricity prices have increased by over 40% in three years while gas and postal charges have gone up by over 20%. While there is a perception that rising prices are due to the introduction of competition in such industries, Government policy has not done enough to promote greater competition. It has instead relied on regulation in spite of extensive evidence from other countries that regulating monopoly firms will not keep prices down and encourage efficiency. Recognition that regulation is ineffective has resulted in reforms in other countries designed to foster competition as far as possible and limit the need for regulation.



The paper criticises a number of the decisions of various regulatory agencies. It notes how the Commission for Energy Regulation asked the ESB to put forward proposals as to how it should be regulated and then asked third parties to comment. In 2003 ComReg allowed Eircom and An Post to raise their prices despite having identified serious inefficiencies in both firms.



The paper proposes a number of reforms to address these issues.

 

 

  • Steps need to be taken to promote greater competition in gas, electricity and postal services.
  • In gas and electricity ownership and control of the transmission and distribution networks needs to be transferred to companies that are independent of ESB and BGE to allow effective competition.
  • There is a need for a properly resourced consumer body that is capable of undertaking the necessary research to present a counter case to the regulated firm. This body should have a right to appeal all regulatory decisions, including decisions to grant price increases to regulated firms.
  • The existing regulatory agencies for energy, telecommunications and airports should be combined into a single regulatory agency.
  • Future price reviews should be conducted by means of a public hearing in order to allow the arguments put forward by firms to be challenged directly.
  • Regulators’ budgets should be capped - the paper suggests a price cap of CPI - 10% for the next five years – to curb the natural tendency toward regulatory creep.
  • There should be a single appeals panel to consider appeals against regulatory decisions. This should include a right of appeal against any decisions relating to prices and/or price caps.
  • Where complaints are found to be unjustified, the complainant should bear the cost of any investigation by the regulator. Similarly parties should bear the cost of unsuccessful appeals.