New Regulatory Agencies Begin Work Today
In A2 micro today we were discussing price-capping by industry regulators as a way of overcoming some of the welfare losses created by monopoly. The new much-expanded regime of regulatory agencies charged with monitoring prices and setting caps when appropriate is available here - can colleagues suggest some more? !!
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OFWAT plans to turn the tap on water company prices
The Times today has an interesting article on the power battle between the water industry regulator OFWAT and the regional monopoly providers such as Thames Water. It appears that a much tougher pricing regime is planned for the utilities leading to cuts in the real price of water supplies for consumers.
“Every five years, Ofwat sets limits on prices that water companies in England and Wales can charge. For 2010-15, it has proposed that, before taking inflation into account, bills should be reduced for many customers, bringing the average annual water and sewerage bill down by 4 per cent from £344 to £330 by 2015. The water companies had wanted a £28 rise to fund their business plans.”
OFWAT wants the utilities to invest more in in improving drinking water quality, cutting leakage levels and raise the number of metered households from 36 per cent to 50 per cent (in a bid to control water usage). But will imposing real price cuts help achieve this objective? The aim is to have a pricing regime that forces the utilities to raise productivity and cut out as many inefficiencies as possible.
Water is a good example of where a strong regulator is needed because of the absence of competition - after all consumers can’t switch supplier if they are given a poor service.
OFWAT wants cuts in the real cost of water bills
The water regulator OFWAT has published their latest five-year price capping proposals for the UK water industry. They want household bills to fall in real terms for water customers in England and Wales - positive news for people struggling to pay their utility bills but not so for shareholders in the water companies who have become renowned for their generous dividends on the back of price increases over and above inflation in past years.
read more...»BAA raises passenger charges
British Airports Authority, which owns and runs seven of the largest airports in the UK including Heathrow, Stansted and Gatwicj has been given clearance by the Civil Aviation Authority to increase the charge it makes for each passenger using the airport. It is a good example of how an industry regulator has the power to cap charges or prices in a market and the news has been criticised by many of the major airlines who are lobbying for a breakup of the BAA monopoly. They accuse the CAA of regulatory failure, of collapsing against the pressure placed on them by BAA to give them greater freedom to life passenger charges for taking off.
According to the Financial Times ”The CAA said it was increasing the price cap at Heathrow by £2.44 or 23.5 per cent in real terms to £12.80 per passenger for the coming year from April 2008. Charges in the four subsequent years could rise by 7.5 per cent a year above inflation.”
I wrote about BAA in a recent edition of EconoMax. BAA is now owned by the Spanish firm Ferrovial and is struggling under a mountain of debt. They face huge bills for ramping up security arrangements at all of the major airports and in investing in new capacity and facilities at airports already stretched to breaking point. Ultimately of course, given the nature of the business, it is the passenger who will foot the bill through higher fares.
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