Have you lost the plot?; A three-part series that explains the issues behind the news

Are the utilities working?

From the point of view of customers rather than shareholders, several of the flagship privatisations have not worked well. The main reason is that the industries were sold with their monopolies largely intact, and there was too little competition.

Managers in the electricity, gas and water industries were able to cut their companies' costs and boast about keeping price rises well below inflation by the simple expedient of cutting tens of thousands of jobs. But that was the easy part. Neither of these trends is likely to continue at the same rate as in the first few years of privatisation. The Government believes that opening up electricity and gas markets to full competition is the best way to give a new downward shove to prices. Furthermore, if there is greater competition it will allow the regulators - who now oversee prices - to take more of a back seat.

Business and commercial gas users are already able to buy gas from any licensed supplier. This is to be extended gradually to all domestic gas customers. Oil companies such as Mobil and Amerada Hess are readying themselves to compete with British Gas and the Government hopes prices will fall by as much as 15 per cent. Ministers want to use evidence of price falls to reverse public disenchantment with privatisation ahead of the election.

Exactly the same is planned for electricity, but after the election, from 1998, when domestic customers will be allowed to sign up with competing suppliers, as industrial users already can.

Ministers would love to do the same for water, but that presents a much bigger problem. With electricity and gas the national and local wires and pipeline grids are common carriers. That means British Gas, the National Grid and the local electricity companies must allow licensed competitors to use them, for a fee, as if they were public toll roads.

What blocks competition in the water industry is that there is no comprehensive national distribution grid - and until there is one, there will only be small areas of the country where it will be feasible to allow different companies to compete for customers.