Utility Regulation in Competitive Markets
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Utility Regulation in Competitive Markets

Problems and Progress

Edited by Colin Robinson

This significant new volume contains incisive chapters on a number of prominent concerns, including changes in the British system of utility regulation, the spectrum allocation question, liberalisation of EU energy markets, security of supply issues, reform in the European postal sector, the future of rail regulation, the cost of capital and Ofcom’s strategic approach to regulation. Chapters on each topic are followed by comments from regulators, competition authority chairmen and other experts in the relevant fields. By confronting the most important international developments in utility regulation, the authors offer practical policy recommendations for an effective way forward.
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Philip Fletcher


202 Utility regulation in competitive markets CHAIRMAN’S COMMENTS Philip Fletcher I agree with a great deal of what Julian says. What I want to do is to offer some thoughts, sticking to my own last, and offer a few examples and expansions on some of the points that he makes. Some of the issues faced by Ofwat are, to a greater or lesser extent, relevant also in other parts of the utility regulation field. We can all agree, to start with, that setting the cost of capital for regulated industries is not, at least any longer, a precise science. CAPM does not provide the firm foundation which regulators would like to see. It compares with Winston Churchill’s view of democracy: the worst form of government except for all the others. We do not have a magic wand, Holy Grail Julian called it, to look to. It is extremely helpful to have the developing work around Fama–French, and a series of other issues. I agree with Julian that no regulator should rely on one approach, certainly not the CAPM on recent evidence. But the track record of the other possible models is still relatively short, and therefore I go with him completely in saying you should look across the board at various different approaches. So where does that leave an unfortunate regulator? For Ofwat in 2004, it left us facing the need to enable water companies to finance another very large capital programme – another, that is after...

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