Electricity Privatization and Restructuring in Ontario and Abroad: Some Lessons from UK and Elsewhere1

Ontario is in the process of privatizing Hydro One. How is this best done? What role should restructuring play? And should other privatizations follow? This paper seeks to learn some lessons from experience in the UK and elsewhere over the last thirty years. Topics covered include the reasons for privatization, the significance of ownership, the implications for regulation, the promotion of competition, the role of restructuring, the particular situation of electricity transmission companies, the operation of markets after privatization, the benefits and costs of privatization, the nature and limitations of regulation, the evolution of regulation, the emergence of “customer engagement” as part of regulation, and the role of government.

1. Why privatize?

In the 1980s Margaret Thatcher’s Government put privatization in central place on the political agenda. Why? It was certainly controversial. Her predecessor, Conservative Prime Minister Harold MacMillan, accused her of selling the family silver. Was privatization just for the proceeds it brought? There is no denying that was helpful: all governments need sources of revenue. However, there was much more to it. Margaret Thatcher argued that “There Is No Alternative”: the economic survival of the UK was at stake.

There were particular advantages to be gained in particular industries. In the case of British Telecoms, a central aim was to improve customer service, to make telephones available on demand rather than on a long waiting list, and to encourage innovation. In the water sector there was a need to fund a massive investment programme to meet new European water quality standards. In the coal and steel industries it was important to stem financial losses and reduce costs for the rest of UK industry.

In contrast, the electricity industry seemed well run and was not loss-making. What was the case for privatizing it? In 1988 the White Paper on Electricity Privatization said that “[d]ecisions should be driven by the needs of customers.” What exactly did that mean? It planned to restructure the Central Electricity Generating Board (CEGB), the monopoly provider of all generation and transmission, in order to enable competition. This would be more efficient: recent reports had found significant time and cost overruns in the building of new power stations. And regulation would be introduced to promote competition and protect customers.

Lesson 1: Although the UK had many reasons to privatize different industries, the aim of greater efficiency was a central reason, that applied in all cases

2. Does ownership matter?

The answer is yes. This is particularly the case for competitive markets, as in generation and later in retail markets. Ownership affects incentives, both to compete and also to operate efficiently, which is equally applicable in monopoly sectors. A lesson we have learned is that incentive regulation only works if companies respond to it, and the response is much greater if the company is privately owned.

For example, the privately owned energy and water network companies have responded to a series of price controls by reducing costs significantly and consistently over the last quarter century. In contrast, when Royal Mail was government owned it failed to respond to a tough price control, and its losses simply mounted. Significant cost cutting and rationalisation started after it was privatized.

In fact, government ownership compromises regulation, because the regulator does not have to worry about objections from private shareholders, the company can always appeal to its owner, and a regulator cannot take on a government. I have seen examples in Guernsey and Northern Ireland, where regulators imposed measures that in my view were unreasonable and reflected a lack of due process, the Government-owned company appealed to the Government, and the regulator was effectively bypassed.

In addition, private companies tend to be more innovative and flexible. National Grid Company is an example here, to be discussed below. Although I also show below that Scottish Water, another government-owned entity, has been particularly innovative and flexible in the matter of involving customers and improving quality of service.

Some countries are keen on joint government-private ownership. Do government majority or minority shareholdings ever work? Do they provide the best of both worlds? Or the worst of both? In the UK, joint ownership is seen as risk, a situation where private owners are vulnerable to overriding and typically non-commercial decisions by government. In consequence, such arrangements have been only temporary – for example, as part of a phased privatization because the stock market would be unable to cope with privatizing the whole industry at once. (British Telecom’s flotation value was about equal to the value of all companies floated in a year.)

Lesson 2: Ownership does matter, with respect to efficiency and competition, and regulation of government-owned companies is less effective than regulation of private companies

3. The development of regulation

A key question at privatization is how to reassure both customers and potential investors. The UK faced this in privatizing British Telecommunications (BT). At that time there was little or no competition in the telecommunications sector, so customers naturally feared that BT would exercise its market power and increase prices. The answer, as in the US, might seem to be regulation. But US regulation seemed problematic: we characterised it as “cost-plus” regulation, not conducive to efficiency in a context where increased efficiency was one of the main aims of privatization. But any different and unknown kind of regulation might frighten off investors. I was asked to advise on what kind of regulation might be appropriate.

In 1983 I recommended that the Government introduce an incentive price cap that acquired the name RPI-X regulation. BT would be automatically allowed to increase its average price by the rate of inflation (RPI stands for Retail Price Index) minus a specified number X, which would be set by Government. The Government set X at 3. This meant that, after allowing for inflation, BT had to reduce its average price at 3 per cent per year. This formula meant that investors were protected against inflation – the risk that a regulator would not allow them to increase prices with inflation was a real one in the days when double digit inflation was not uncommon – and the real price reduction of 3 per cent per year was a tangible benefit to customers from privatization.

What about the future? Would investors be at risk of asset expropriation or the imposition of unreasonable costs or restrictions? The regulatory framework was constructed so that regulation was independent of government: the regulator reported to Parliament, not a Minister. The regulatory body had a duty to promote competition and protect customers. The obligations and restrictions on the regulated company (e.g. the price control) were set out in a licence. What was to stop the regulator from simply changing the licence after investors had bought the company? Changes to the licence could only be made by agreement with the company. Did that mean that the company could simply refuse to accept any changes, and the regulator would be powerless? No, because there was provision for the regulator to refer any disputed licence modification to the Competition Commission, which would carry out a fresh review and had power to impose appropriate licence modifications.

The impending privatization thus forced the Government to develop a regulatory system that protects both customers and investors. In practice, this system has been applied to all the regulated sectors, and has worked well. Regulators and companies have seen what kinds of licence changes the Competition Commission has been willing to accept – mostly, with respect to revised price controls. Mostly, the Commission has supported the regulator, but has not hesitated to impose either more or less onerous conditions on the company. So, companies do not lightly oppose a regulator’s proposed licence changes, and regulators do not propose ill-considered modifications that they could not justify before the Commission if necessary.

The result is that, in recent years, there have been relatively few appeals to the Commission. Regulation has proceeded by agreement. In fact, some have suggested that regulation has become too cozy, that there have been too few appeals. Some recent changes have been made to the appeal arrangements that may have the effect of stimulating more appeals – some fear too many. We shall see.

Lesson 3: Privatization forced the development of a form of regulation to protect both customers and investors

4. Creating competition

Competition has been described as a rivalrous discovery process taking place over time. The number of competitors in an industry at any time is perhaps less critical than the ability of new producers to enter an industry if existing competitors are not providing what customers want, or providing it only at excessive prices. Privatization is an opportunity to remove barriers to new entry (notably statutory ones) and to restructure the existing industry (often a monopoly) to form several competing successor companies.

The initial utility privatizations – of telecommunications, airports and British Gas – removed the main barriers to new entry. However, the opportunity to restructure the industry was not seized. Critics began to deplore the lack of competition, arguing that the benefits of privatization were going to investors rather than customers.

In contrast, the Secretary of State decided that competition would be a key characteristic of electricity privatization. To achieve this, the initial plan was that the transmission system would be taken out of the CEGB to form a separate and independent National Grid Company that would treat all generators, distribution companies and retail suppliers on a non-discriminatory basis. The generating stations would be divided into two companies: so-called Big G which would have about 70 per cent of the generating capacity (more precisely, capacity producing about 70 per cent of total output), and Little G with the other 30 per cent. Big and Little G became known as the Duopoly.

What was the thinking behind this slightly odd arrangement? The problem was that although most generating stations were coal-fired, about 15 per cent of total output was provided by nuclear stations. These were regarded as more risky, particularly since their future decommissioning costs, and even their present running costs, were unknown. There was a case for leaving them out of the initial privatization, but the Prime Minister was insistent that they be included, because of the importance of making them commercially viable. The initial view was taken that investors would be reluctant to buy nuclear stations, but they could be sold as a relatively small part of a larger company. Hence Big G at 70 per cent had to be big enough to hide the nuclear stations, and Little G was given the remainder in order to create a company large enough to compete with Big G.

As the preparations for privatization progressed, the future costs and risks of the nuclear stations became ever more apparent. At the last minute, the nuclear stations were pulled from the privatization. This left Big G (later named National Power) with 55 per cent of capacity, Little G (named PowerGen) with 30 per cent and a new government-owned Nuclear Electric with 15 per cent.

Over time, new companies entered the market building gas fired power stations. The rate of entry was so fast that this became known as the Dash for Gas. Nevertheless, the incumbent companies National Power and PowerGen still had significant market power. There was increasing regulatory and public concern. As regulator, I took steps to encourage/force the two large generators to sell off generating stations to other players. This was not straightforward: it required a mixture of carrots (permission to purchase distribution and supply businesses) and sticks (threat of reference to the Competition Commission). There is no doubt that it would have been better and much easier to have restructured the industry more radically at the time of privatization, when the government could simply divide up the company as it wished. Such an approach was indeed subsequently taken in Argentina and the state of Victoria (Australia).

Lesson 4: Restructure a to-be-privatized company or industry to create competition while you have the chance

5. Is transmission boring?

Hydro One is an electricity transmission and distribution utility. Some might argue that privatization might be relevant for a company that is actively engaged in the competitive market, but is unnecessary or unsuitable for a transmission and distribution business. UK experience suggests otherwise.

National Grid Company (NGC) was created to own the England and Wales national transmission grid. As a transitional measure, because it did not have its own financial record as an independent entity, it was initially owned by the 12 distribution companies. A few years later it was floated as a separate company.

In the following years NGC bought the national gas transmission and distribution network company (Transco). The concept of a single owner of both electricity and gas distribution networks raised some concerns, but it was argued that NGC was more efficient that Transco, and would improve efficiency in the latter business. National Grid was, however, required to sell off some of the regional gas distribution networks. This enabled comparative regulation: the regulator, the Office of Gas and Electricity Markets (Ofgem), was able to compare the efficiencies of different networks in different ownership. As it happens, NGC is at this moment in course of voluntarily selling the remaining gas distribution networks that it kept.

In order to maximise the pressure of competition, Ofgem proposed that all new transmission investments exceeding £100m in value should be put out to tender. It is presently in course of implementing that proposal during the present price control review.

NGC has invested in US networks and in new interconnectors to the UK. Its increased scope of activities has raised the question whether there might now be a conflict between its roles as transmission operator and system operator. Consideration is presently being given to splitting those roles into separately owned entities.

Lesson 5: Transmission Companies too can be major players in a fast-changing world, but to do so effectively they need the flexibility and control that private ownership brings

6. Distribution & retail companies

Before privatization, the nationalized electricity sector in England and Wales had 12 Regional Electricity Companies (RECs) that were responsible for local distribution and retail supply. Was any restructuring needed before they were privatized? Some advocated merging them into one single company, to provide a more effective counterweight to the CEGB, had that been privatized as a single entity. But the decision to split the CEGB invalidated the case for such a merger. There were also suggestions that they be merged to form six double-sized companies. But the Government decided instead to privatize the companies as they were: there was no adequate basis for deciding whether and how far there would be economies of scale in the new more competitive environment, and more decision-makers were preferable to fewer.

The Government did, however, decide to restructure each REC into separate distribution and retail supply businesses. This meant that, over time, each company could decide whether to specialize in engineering (distribution) or in retail markets. For an initial five year period, each of these companies had a “Golden share” owned by the Government, which the Government would use to prevent a change of ownership. After that period, however, mergers and takeovers were allowed. Some companies were keen to expand, in other cases the investors were happy to be bought out. Over time, the market established a “going market price” for distribution and retail supply businesses. Interestingly, potential buyers and sellers found this very important in order properly to evaluate their decisions.

With various modifications, UK regulators continued the RPI-X incentive regulation scheme. In doing so, it was important to evaluate the scope for future efficiency improvements. The regulators developed concepts of comparative competition: comparing the efficiencies of the 12 distribution businesses and setting targets for the less efficient ones to match the more efficient ones over the next five year price control period.

The ability to buy and sell distribution and retail businesses, and the pressure of incentive price controls, led to numerous takeovers and mergers in the sector. The larger generating companies bought into distribution and retail supply, partly as a means of stabilizing their income, partly as a means of achieving economies and reducing risks via vertical integration. New entrants from the US, France, Spain and Germany took over yet other businesses. Businesses were sold and resold. Ownership thus evolved, as in other markets. To some extent this reflected a search for scale economies: There are now 4 distribution companies, each with 3 or 4 networks, and supply is mainly concentrated in the so-called Big 6 retailers, although new entrants over the past few years now account for over 10 per cent of supply to domestic customers. Similar phenomena are observed in other successful competitive markets around the world, such as Victoria, New Zealand and Texas.

Lesson 6: Let the market determine the most efficient and constantly evolving structure of the industry, rather than expect government or a regulatory body to determine this

7. The overall impact of privatization

The main aims of privatization included to increase efficiency and to better meet the needs of customers. Is there evidence that privatization of the UK electricity industry achieved that aim?

An examination by the National Audit Office2 found that price cap regulation of the networks had delivered substantial benefits, as a result of providing strong incentives to increase efficiency. For example, it found cuts in operating costs (opex) of about 25 per cent from 1994/5 to 1997/8, and cuts in transmission (controllable) operating costs of about 50 per cent since 1990. It also found other benefits including improved reliability.

In 1997, an academic cost-benefit analysis of the privatization of the CEGB generation and transmission business found the total net present value ranged from £4 billion to £10 billion, depending on the precise assumptions, but estimated that all of this went to investors.3 A colleague and I carried out a similar study in 2004, taking into account later developments in the industry and making alternative assumptions about the counterfactual (what would have happened in the absence of privatization).4 We calculated that the net present value was about £23 billion, of which about half went to customers. In either case privatization was a beneficial policy5 and, over time, customers benefited more than seemed to be the case initially.

My own recollection is of a much simpler and more striking measure. In the decade or so after privatization, total manpower in the industry fell by about two-thirds (part of which was accounted for by contracting out of meter-reading). One might have expected resistance from the work force, but this was not the case. The unions had negotiated good severance terms, many were happy to leave and work elsewhere. Those that stayed in the industry found they had more satisfying and varying careers, for example as a result of multi-skilling and better industrial relations within smaller, more flexible companies compared to a nation-wide monopoly.

Lesson 7: Privatization can be beneficial for customers and employees as well as investors

8. UK energy price control reviews

In 2008 the energy regulator Ofgem carried out a Review of Network Regulation, called [email protected]6 It noted a number of significant achievements, notably improvements in efficiency, 30 per cent lower network prices, 30 per cent greater reliability, more investment, and good rewards to shareholders.

But there were also significant weaknesses. Price control reviews were time-consuming, costly and complex. Innovation was good but narrow, focusing on opex efficiency and lower cost financing. The record was not so good in network design, operation and pricing, and the latter would be more important in future, with the advent of low carbon technologies. There was no incentive for companies to put forward good business plans because companies went through the same tedious review process regardless of quality. And finally companies were led to focus on the regulator instead of their customers.

Lesson 8: Regulation may be effective in many respects but may have downsides, and may need refreshing over time

9. A new regulatory approach

Ofgem decided that in future there would be a need for more innovative and flexible networks to work with and respond to customers. This would necessitate more incentives to encourage more innovation. For example, it proposed funding competitions to reward companies for innovations.

The focus should be on outputs not inputs. For example, regulation and revenues should be based on actual capacity and reliability provided, not on expenses incurred and investment. The focus should also be on total costs (totex) not on Opex & Capex separately.

Ofgem proposed a fast-track price control review for companies that had well-evidenced business plans with good customer engagement. Such companies could complete the price control review in six months instead of 18 months.

Lesson 9: Regulation can evolve significantly to address previous concerns and to deal better with new issues in future

10. Negotiated settlements in North America

What exactly does good customer engagement mean, and where did the idea come from? There are antecedents in North America, and more recently in the regulation of UK airports.

In the U.S., so-called negotiated settlements between the regulated company and its customers originally arose to reduce the time, cost and risk of litigation before the federal or state regulator. The parties would agree a proposed rate increase to put to the regulator. This seems to have been initiated by the Federal Power Commission (FPC) in the 1960s, but has since happened elsewhere, particularly in Florida in the 1990s. Amongst other settlements there, the Office of Public Counsel and the electricity companies agreed tariff cuts worth over $4 billion.

At the Federal Energy Regulatory Commission (FERC), when companies proposed a rate increase in the 2000s, FERC staff would propose, within three months, an alternative rate increase based upon their own assumptions of what would be reasonable. Staff would then lead discussions between companies and their customers. The parties often settled in the next six months.

At the National Energy Board (NEB) in Canada, the NEB considered that setting a cost of capital formula would avoid long hearings. In the light of it, pipelines and their customers were generally able to negotiate a settlement. In fact, since 1997 almost all pipeline rate cases have settled. These settlements also introduced multi-year incentive systems, and often also required the provision of information and set quality of service obligations. The outcome was better information and customer relationships in the industry. The NEB’s policy was that, if the process of negotiation was sound, it would accept the outcome, and not substitute its own view of the public interest.

Other jurisdictions in Canada, including Ontario, and in Australia and Germany have similarly used negotiated settlements.

Lesson 10: Regulators do not need to take all the decisions: regulation can work by “holding the ring” and allowing the parties to negotiate

11. First UK constructive engagement

In the UK, price control reviews are typically more complex than in North America. Prices are not based on the actual costs in a recent test year. Rather, the review seeks to assess the efficient level of operating costs over the next five year period, together with the most efficient plan for future capital investment. This process can be extremely challenging, since the regulated companies will typically challenge all or most of the regulator’s assumptions.

This was the case with airport regulation. The 2003 review of charges was particularly confrontational, the airports and airlines disagreed with each other, and left the Civil Aviation Authority (CAA) to take all the major decisions, which it was not equipped to do.

In 2005 the CAA changed its approach. It proposed what it called a process of “constructive engagement.” It suggested that each regulated airport and its airlines seek to agree a number of major elements underlying the price control, notably traffic forecasts, desired quality of performance standards and the future investment programme. The CAA would then make assumptions about efficient future opex, decide the cost of capital and financing assumptions, and set the final price control.

Initially there was suspicion and reluctance by all parties, and the process was not without difficulties. But by 2007 these aims were largely achieved at the two main London airports (Heathrow and Gatwick). There was an early failure to reach agreement at the third London airport (Stansted), but the process was later repeated successfully (under the jurisdiction of the Competition Commission) once the hotly disputed issue of a new runway was off the table. The regulator also reported improved relationships and understanding between the parties.

From 2009 onwards the CAA as regulator continued to use this approach. Following advice from the Competition Commission, the CAA gave more structure to the negotiation process, with a view to better facilitating it. For example, it specified what information was to be provided by whom and when, and set and monitored a timetable for reaching agreement, with periodic reports by the parties.

Lesson 11: Regulation can be adjusted to enable informed customers to play a greater role in the process of setting price controls by negotiating specified elements with the regulated company

12. Latest developments in customer engagement in the UK

The constructive engagement process in airport regulation involved a relatively small number of relatively informed customers. Can a similar process work with an electricity distribution network with, say, two million residential customers?

As noted above, one result of Ofgem’s 2008 review of regulation was a decision to offer fast-track reviews to those companies that provided well-evidenced business plans with good customer engagement. The water regulator Ofwat adopted a similar policy. These reviews started in about 2012 to determine price caps for the period beginning 2015. (Ofgem had earlier tried out a similar approach with the electricity and gas transmission networks which provided encouragement to extend the idea.)

The regulated network companies and their customer representatives were very keen and engaged strongly and constructively. Company business plans were much revised in light of this interaction, and customers supported them. However, the regulators fast-tracked only one company in each sector. Their explanations were that the other companies’ business plans embodied insufficient future cost reductions. These other companies were then put through the conventional slow-track route, with the regulator indicating what level of future cost reduction would be acceptable.

Does this represent a failure of the approach? Will it discourage companies and customer representatives from engaging in future? Should the process be run a different way next time? All these questions have been under discussion in the UK, as regulators and companies prepare their thinking for the next review process. Meanwhile, it is important also to consider an alternative version of the approach.

The Water Industry Commission for Scotland (WICS) was also interested in a new approach to the Strategic Review of Charges that involved customers working constructively with the single government-owned Scottish Water company, and the company was prepared to accept a new approach. WICS, Scottish Water and Consumer Futures (later Citizens Advice Scotland, the statutory customer body) together created a Customer Forum. The Forum had a formal role: to work with Scottish Water to carry out research into customer preferences, to represent these preferences to the company and the regulator, and to seek to secure the most appropriate outcome for customers in the Strategic Review.

Part-way through the process, the regulator invited the Forum to seek to agree a business plan with the company, consistent with a series of regulatory guidance notes that the regulator would provide. These notes covered a variety of relevant topics, including views on cost and efficiency, and levels of investment. The process proceeded well, there was good and constructive engagement, not least involving fairly active participation by the regulator. Agreement was reached on a business plan, and this formed the basis of the price control that the regulator set. The process is widely regarded as a great success.

Discussion in the UK thus includes whether some version of the “Scottish model” could and should be applied in England and Wales. Is it feasible for regulators there to give formal and informal guidance – say on acceptable future cost efficiencies – to a dozen companies and their customer groups? How far should regulators delegate their responsibilities to customer groups? What should be the guidelines as to the composition of the customer groups? How far should each company and its customer group report their thinking and agreements or disagreements for consideration by other companies and customer groups? There are many questions to consider, but the general feeling seems to be that customer engagement has been a qualified success and ought to be at least continued in future, and some would argue for extending it.

Lesson 12: In the energy and water sectors too, regulators may achieve more by encouraging companies and customer groups to negotiate, subject to regulatory guidance, than by taking all the decisions themselves

13. UK Government and regulation

Does government have an impact on a regulated industry, and indeed on regulation itself? At the time of the 1989 privatization of the electricity industry the Conservative Government’s energy policy was not to have an energy policy. The Government did not see its duty as being to plan the evolution of the sector. The competitive market was the most effective means to ensure that supply was sufficient to meet demand, in the most efficient way. The duties of the Government and the regulator were relatively simple: to promote competition and protect the interests of customers.

Over the period 1997 to 2008 successive Labour Governments modified these regulatory duties, primarily to place greater weight on environmental considerations and also on fairness as between different types of customers. The regulatory duty was modified to promote competition “wherever appropriate.” There was a new duty to contribute to achieving sustainable development. The Government took power to issue guidance to the regulator on social and environmental policies.

Between 2008 and 2010 the Government further modified the regulatory duties, in the same directions. For example, it now specified that the interests of customers included their interest in lower greenhouse gas emissions. And before promoting competition, the regulator should consider whether other ways of regulation could achieve the same effect. The Government also supported Ofgem’s intervention in the retail market to remove “unfair price differentials.”

In 2013 the Coalition Government indicated its intention to provide a Strategy and Policy Statement, together with a new duty on Ofgem to further the delivery of this government policy. The regulator was also required to explain at the beginning of each year how it would discharge this remit. At the end of each year, it would have to explain whether and how far it had succeeded, and if it had not delivered as promised, it had to explain how it would remedy the situation the next year. In the event, the Coalition Government did not issue a statement before it left office, and it remains to be seen whether the present Government will do so.

Lesson 13: Governments will find ways to use regulation to further its policy ends, though regulation is probably not the main means by which Government implements its policies

14. UK Government energy policy

In 2008 the Labour Government announced a complete rewrite of energy policy. The Minister indicated that “important decisions cannot be left to the market”. In 2010 it introduced an Energy Market Reform policy. This included targets for renewable energy, contracts for low-carbon energy, a 35 year contract for a new nuclear generation station (at about twice the wholesale market price), and a capacity mechanism. The Coalition Government continued a similar approach over the period 2010 to 2015.

In 2015 the incoming Conservative Government seemed to some extent to be reconsidering energy policy. It made cuts to some subsidies to renewable energy, but continued to support nuclear and offshore wind. The Government’s non-binding strategic Steer to the Competition and Markets Authority emphasised deregulation, but there has been little sign of this in the energy sector. There were arguments that government policy was increasing risk, and questions whether unsubsidized investment was any longer viable.

Lesson 14: Government cannot be expected to follow a consistent course over time and successive governments will change policy regardless of type of ownership, but privatization means that the government has to act explicitly rather, and Parliament can thereby better hold it to account

15. Lessons for other jurisdictions

Privatization has been a politically contentious policy in many sectors and countries, not least the UK. Experience suggests that it has many potential efficiency benefits. But it is an important beginning to a reform programme, it is not the end of the story.

Privatization offers a valuable opportunity to restructure an industry to better facilitate competition and comparison between more successor companies. In the electricity sector, competition is indeed possible in generation and in retail supply. There is also a need to find efficient arrangements for the monopoly transmission and distribution networks. In both cases, there is advantage in allowing the market to continue to evolve via mergers and takeovers.

Initially, regulation of the network businesses aimed at incentivising greater efficiency, which was indeed achieved, albeit at the cost of time-consuming and burdensome price control reviews. Increasingly, the focus has been more on incentivizing companies to discover what customers want, and to innovate and adapt to a changing world. Initially, it was most important to design the regulatory role to protect both customers and investors. Increasingly, it is also important that regulation be flexible, innovative and responsive.

One has to accept that political concerns will have an impact on a regulated industry and on regulation itself. But I would argue that government and political intervention would be worse in the absence of privatization. Hopefully these lessons will be of some assistance in designing a way forward in Ontario.

* Emeritus Professor, University of Birmingham, and Fellow, Judge Business School, University of Cambridge.

  1. This paper is based on a presentation “Electricity Privatisation and Restructuring in Ontario and Abroad: Lessons from the UK and elsewhere” (delivered at the Ivey Business School, Toronto, 30 November 2015).
  2. UK, House of Commons, National Audit Office, Pipes and Wires, by the Comptroller General and Auditor General, in HC 723 Session 2001-2002 (10 April 2002).
  3. David M Newbery & Michael G Pollitt, “The Restructuring and Privatisation of Britain’s CEGB – was it worth it?” (1997) 45:3 Journal of Industrial Economics 269; see Stephen Littlechild, “Competition and Regulation in the UK Electricity Market” (2004) 14(1) Économie Publique 3 at pp 8-10 [Competition and Regulation in the UK Electricity Markets].
  4. Competition and Regulation in the UK Electricity Markets, ibid.
  5. Ibid at p 10.
  6. See Alistair Buchanan, “OFGEM’s ‘RPI at 20’ Project” (speech at SBG, 8 March 2008), online: OFGEM <https://www.ofgem.gov.uk/ofgem-publications/64130/sbgi-6-march.pdf>.

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