Econonomics of Energy and Environmental Policy

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Regulation and Customer Engagement

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The utility regulation framework developed in the UK in the 1980s, and widely adopted internationally, was intended to improve on the restrictive, inefficient and burdensome regulatory approach in the U.S. But the UK regulatory process has itself now become increasingly burdensome. Meanwhile, utilities and customer groups in the U.S. and Canada have developed methods of negotiating and settling regulatory issues that more directly reflect the interests of customers, often embody incentive price caps as in the UK, and avoid unduly burdensome regulatory processes. There is now scope for UK regulators to learn from overseas. This paper summarises these developments. It then examines how three UK utility regulators— of airports, water and energy—are responding to them by developing new forms of customer engagement. The CAA has moved firmly in this direction for airports, while Ofwat and Ofgem have nominally rejected it for water and energy, but seek to secure many of the benefits of the approach via less committed processes. There is scope for governments to encourage a regulatory approach that offers the prospect of better outcomes for customers and a less onerous process for all concerned.
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JEL Codes:L51: Economics of Regulation, L94: Electric Utilities, D12: Consumer Economics: Empirical Analysis

Keywords: Negotiated settlements, Constructive engagement, Customer engagement, Regulation

DOI: 10.5547/2160-5890.1.1.6

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Published in Volume 1, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.


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