The Politics of Regulation
Also by Alison Young THE FIXERS: Crisis Management in British Politics (with Trevor Smith)
The Politics of Regulation Privatized Utilities in Britain Alison Young Research Fellow Centre for Management under Regulation Warwick Business School Warwick University
Alison Young 2001 Softcover reprint of the hardcover 1st edition 2001 978-0-333-92750-2 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1P 0LP. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted her right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2001 by PALGRAVE Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N. Y. 10010 Companies and representatives throughout the world PALGRAVE is the new global academic imprint of St. Martin s Press LLC Scholarly and Reference Division and Palgrave Publishers Ltd (formerly Macmillan Press Ltd). ISBN 978-1-349-42536-5 ISBN 978-0-333-97812-2 (ebook) DOI 10.1057/9780333978122 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Young, Alison. The politics of regulation : privatized utilities in Britain / Alison Young. p. cm. Includes bibliographical references and index. 1. Public utilities Deregulation Great Britain. 2. Privatization Great Britain. I. Title. HD2768.G74 Y68 2001 363.6'0941 dc21 00 053045 10 9 8 7 6 5 4 3 2 1 10 09 08 07 06 05 04 03 02 01
For my mother
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Contents Preface List of Abbreviations viii x 1 From Nationalization to Privatization 1 2 Regulators at Work 25 3 A Fair Deal for Consumers? 53 4 Monopoly and Competition 80 5 The Regulators and Parliament 107 6 The Impact of Environmental Policies 130 7 Governments in Miniature? 149 Notes 157 References 161 Index 169 vii
Preface The privatization of utilities was a major innovation in British politics and both the principles and the implementation have been the subject of vigorous debate since 1984 when BT became the first state-owned utility to be sold off. The passing of a new Utilities Act in 2000 marked the end of a preliminary phase that has witnessed much public criticism but ultimately seen a measure of acceptance. This book attempts to analyze the rationale for returning the nationalized industries to private ownership, the activities of the regulators who were appointed to oversee them and the mechanisms put in place to ensure accountability. The emphasis is on the politics of regulation and a narrative is presented of the main events that illuminate this process over the period since privatization. Greater stress on consumer issues developed gradually, but there were several episodes in which consumers were dramatically failed by the privatized companies. The MMC, now the Competition Commission, played an important role in establishing the RPI X formula, introducing competition and the establishing the accounting disciplines which underlay economic regulation. Parliamentary select committees tried, though without notable success, to improve accountability. The problems of integrating environmental policy came increasingly to the fore. Some areas receive briefer treatment telecoms for instance, where both the regulator and the industry have for several years asserted that their business was not a utility. The rail industry, presenting a very different range of problems, is excluded altogether. Similarly, no coverage is given of the European input to regulation or the influence of financial institutions. Though the emphasis is on politics, those who seek a more economicsbased approach will find plenty of sources in the references. I have been fortunate over the last three years to be a Research Fellow at the Centre for Management under Regulation at Warwick Business School. During the writing of this book the encouragement and support of the centre s Director, Professor Catherine Waddams, has been invaluable. I would also like to thank all my colleagues at the centre, especially Lin Fitzgerald, Catherine Mitchell and Diane Sharratt, for their advice and help. viii
Preface ix I would also like to thank Morten Hviid, Patrick Law, Michael Doble, Graham McKie and Alex Young all of whom commented on various chapters. I am grateful to all of them, but especially to my husband, Charles Young, for his help and forbearance over so many months.
List of Abbreviations ABC BAA BATNEEC BGT BPEO BT CA CCGT CHP CLA CRI CSC DGFT DoI DTI ECC ECCCG EESoPS ERM ESI EST EU FFL FGD FMI GECC GW HEES IEA IPPR kw LBS MMC MW NAO Activity Based Costing British Airports Authority Best Available Technology Not Entailing Excessive Cost British Gas Trading Best Practicable Environmental Option British Telecom Consumers Association Combined Cycle Gas Turbine Combined Heat and Power Country Landowners Association Centre for the Study of Regulated Industries Customer Service Committee Director General of Fair Trading Department of Industry Department of Trade and Industry Electricity Consumers Council Electricity Consumers Councils Chairmens Group Energy Efficiency Standards of Performance Exchange Rate Mechanism Electricity Supply Industry Energy Saving Trust European Union Fossil Fuel Levy Flue Gas Desulphurisation Financial Management Initiative Gas and Electricity Consumers Council Gigawatt Home Energy Efficiency Scheme Institute of Economic Affairs Institute for Public Policy Research kilowatt London Business School Monopolies and Mergers Commission (now Competition Commission) Megawatt National Audit Office x
List of Abbreviations xi NCC NECC NEDO NETA NFU NFFO NIE OFFER Ofgas Ofgem OFT OFTEL Ofwat ONCC PAC PES PUAF REC SWALEC SWEB SWW TIC TXU WASC WOC National Consumer Council National Electricity Consumers Council National Economic Development Office New Electricity Trading Arrangements National Farmers Union Non Fossil Fuel Obligation Northern Ireland Electricity Office of Electricity Regulation Office of Gas Supply Office of Gas and Electricity Markets Office of Fair Trading Office of Telecommunications Office of Water Services Ofwat National Consumer Council Public Accounts Committee Public Electricity Supplier Public Utilities Access Forum Regional Electricity Company South Wales Electricity South Western Electricity Board South West Water Trade and Industry Committee Texas Utilities Water and Sewerage Company Water Only Company