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Our regulators are biased: they believe in regulation


John Simpson

John Simpson

Kevin Scott / Presseye

John Simpson

The Utility Regulator has an aversion to sticky consumers! If you are a sticky consumer, are you grateful that the regulator would like to free you from your sticky position?

Just for clarity, the term 'sticky consumer' is used by the Utility Regulator and her professional consultants to identify consumers who have not, in recent years, opted to change their electricity or gas supplier. Behind the terminology is a criticism of consumers who simply do nothing to explore competitive alternatives.

Of course, for some, a sticky attitude may conceal a well informed decision.

The Utility Regulator has now received the final report, from consultants Cornwall Energy, who were asked to consider a range of regulatory policy options, usually relying on a lesser degree of market regulation than the existing extensive regulatory local policies. In contrast to the electricity and gas markets in GB, the Northern Ireland market is still significantly more regulated.

The usual thesis from the regulator is that gradually the local market place is opening up and operating with a growing degree of competition but key features of the market should be subject to regulation influencing on permitted market prices.

The present arrangements have resulted in prices for domestic and smaller commercial users that compare well with GB comparators. The Consumer Council notes that in April 2016, for households, electricity was 16% cheaper than in GB and natural gas was 23% cheaper. However, that comparison overlooks the major critical complaint that industrial large scale electricity users face electricity bills which offer a real competitive cost disadvantage.

Regulation in the energy supply market in NI operates by directly affecting three supply companies. Power NI is the largest electricity supplier and its tariffs are subject to approval. Retail gas prices are controlled through regulation of SSE Airtricity in the greater Belfast area and through Firmus in the (so-called) Ten Towns area. These tariffs tend to set baselines for pricing policy by any competitors.

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The tariffs for large scale industrial users are, however, not subject to regulation. Those consumers cling to the hope that the regulator would consider further measures to ease their problems.

During the current consultation, the Utility Regulator did not seek advice on whether the electricity and/or gas markets might be completely deregulated. Even though some suppliers think that deregulation should be actively considered, the implicit judgment for the consultation was that the valid question was one on the degree to which regulation should continue and possibly be re-enforced.

The consultants for the regulator were asked to consider seven different possible policy options. Three of the seven did not survive for further consideration but four remain on the agenda.

The four tackle possible non-competitive disadvantages from:

1. Significant market power, where a supplier might be able to offer undue preferences or make undue discrimination in obligations to attract consumers.

2. An inactive customer tariff, identifying sticky consumers to attract supply offers from other suppliers.

3. A default tariff, sufficiently detailed to be assessed by potential consumers.

4. Dominance thresholds, where suppliers are large enough to exert market power.

Each of these options embrace features which suggest that existing competition, on its own, may not give consumers sufficient protection. Some of these ideas might be applied taking into account recent changes in GB based on a review by the Competition and Markets Authority.

The regulator has not yet made any firm proposals on these options, with one exception. Whatever steps are taken, it has recommended (possibly controversially) the exclusion of industrial and commercial (I&C) users from the changes. This relies on the evidence of increased competition in the I&C market and the absence of GB action in the micro-business market.

The regulator has opened the way for a major review of the form of regulatory action. In 2017 there needs to be a wide-ranging public debate.