978 - 1 - 107 - 02423 - 6 - Modern Economic Regulation : An Introduction to Theory and Practice

Public utility services matter. Around the world, access to clean water and sanitation facilities, effective telecommunications and Internet services and reliable energy and transport services are indispensible to individuals, societies and economies. Given their critical importance, the public utility industries have long been subject to government regulation. The pages that follow seek to describe, at a general level, how these industries are regulated across different industries and countries, and to draw on the evidence, where available, of the impacts of regulation: in essence, which policies and strategies have worked, and which have not. This book is intended to be accessible to a general audience and to provide an entry point to what has become a highly technical and specialised area. It aims to help those who wish to develop a general understanding of the rationales, institutions and principles of economic regulation of the public utility industries and, in particular, to describe how regulation has evolved in different jurisdictions, and across different industries in the last thirty years, since the introduction of restructuring policies in many parts of the world, and the publication of many seminal books in this area. The book has three essential aims. First, it seeks to examine the various rationales for the widespread application of economic regulation to what I have termed ‘the public utility industries’ (namely the electricity, gas, telecommunications, transport and water industries), and to consider how these rationales relate to specifi c regulatory policies and interventions, and indeed to the various alternatives to economic regulation that have been proposed, or tried, in these industries. Second, it seeks to elucidate the most important economic principles from analytical work (theory) as to how to regulate the public utility industries. In this respect, an important distinction is drawn between principles related to the regulation of the ‘core’ or natural monopoly-type activities where there is no competition (i.e. typically the electricity wires, gas pipelines, telecommunications cables and wires, railway tracks and water and wastewater pipes) and principles relevant to activities that are competitive or potentially competitive. The third aim is to describe, in a general way, how economic regulation is applied in practice. This includes a description of the main conceptual approaches that have been adopted to controlling the prices and conduct of public utility fi rms, as well as a more specifi c focus on how regulation is applied in four public utility industries – electricity, gas, telecommunications and water and wastewater. In examining these four industries, this book draws on available evidence as 1