Role for Markets v. Regulatory Intervention


EIUG members aim to secure competitive energy prices enabling our industries to compete in international markets. We therefore firmly support a market-based energy policy in all areas where effective competition can be ensured. It is not the business of government or regulators to predict the optimal economic mix or location of energy sources. This is best left to the energy industries, which have the necessary commercial incentives to ensure security of supply at the lowest cost to consumers.EIUG supports vigilant surveillance of the traded energy markets to deter market abuse.

EIUG believes regulation by independent agencies (Ofgem, FSA, etc.) is preferable to direct regulation by government departments that can be subject to conflict of interest. EIUG supports an ongoing role for market regulators and competition authorities in monitoring the extent of mergers and acquisitions in the energy sector. It is important to ensure that market concentration, or abuse of a dominant position, does not endanger effective competition.

EIUG is sceptical of the extent to which market solutions are appropriate in natural monopoly network industries, such as onshore electricity and gas transportation and distribution.

EIUG believes that a degree of regulatory intervention is unavoidable for network industries, whether or not attempts are made to introduce pseudo-market signals (such as capacity auctions) either for allocation purposes or to inform investment decisions. Such industries are rightly subject to regulatory constraint. Investment will only take place if an adequate return can be made. This requires an adjustment to the regulatory asset base, depending on regulatory approval.

Whilst EIUG supports measures designed to incentivise network industries to invest efficiently, these should not be used as an excuse for abdicating regulatory responsibility regarding levels of capital investment. There is therefore a role for regulatory leadership on long-term strategic matters.