Dossier hits at regulator 'ideologues'

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The Independent Online
A BITTER clash of ideas has erupted between the privatised utilities and the gas and electricity industry regulators, Ofgas and Offer.

Instead of the usual company-versus-regulator battle, this dispute has become intensely personal, focusing on the private backgrounds and economic philosophies of a group of academics associated with the regulatory bodies.

An anonymous dossier on the group, including information about how they are connected, has been prepared and is being circulated among journalists.

At the heart of the clash is the belief that the regulators have fallen under the spell of a trio of academics who all share the free-market and anti-monopoly beliefs of the Austrian economists, Friedrich Hayek and Joseph Schumpeter. The three-page dossier on the group is headed "Austrians in Offer and Ofgas".

The three who have aroused such ill-feeling are Professor Michael Beesley of the London Business School, Professor Colin Robinson of the monetarist think-tank the Institute of Economic Affairs, and Surrey University, and Dr Eileen Marshall, his wife and the Ofgas No 2 .

This week, the campaign against them will be fuelled by a lecture by Professor Beesley at the Royal Society of Arts in London, on "RPI - X; principles and their applications to gas" (a reference to the gas-pricing formula). In the chair at this joint LBS/IEA session will be Clare Spottiswoode, director-general of Ofgas.

Next month, further ammunition for the utilities will come in another LBS/IEA seminar at the same venue: "Profit, Discovery and the Role of Entry Applications" given by Professor Robinson. In the chair this time will be Professor Stephen Littlechild, director-general of Offer, the electricity regulator.

Hayek and Schumpeter believe in "positive public choice". Entrepreneurship, they argue, is all. Without it and without new entrants coming in, a market will not thrive. Choice and competition are everything; monopoly which restricts that process is not. Rather than be there to control and obstruct, regulators, they claim, should encourage competition - even to the extent, in the absence of new entrants, of acting as competitors themselves.

For the likes of British Gas and the electricity and water companies, the "Austrians" are ideological opponents and their British disciples are the enemy.

Professor Littlechild, the main advocate of greater competition among the regulators and architect of the RPI-X utility pricing formula - which some operators, notably British Gas, would like to see replaced by a sliding-scale calculation based on profits - was Professor Beesley's star pupil at Birmingham University in the early Sixties.

Professor Robinson, so the companies believe, developed a loathing of large suppliers while negotiating Southern Basin gas contracts with British Gas on behalf of Esso. In 1968 he left Esso and entered academia, at Surrey University, where he is professor of economics. Known as "Blue Robbo" he is also editorial director of the IEA and with his friend, Professor Beesley, organises the LBS/IEA lectures.

Last November, the latter sent out a list of suggested topics for discussion in the 1995 series. One was "The potential contribution to regulation of 'Austrian' approaches: especially Hayek and Schumpeter".

Professor Robinson admits that he, his wife and friend are "Austrians", but dismisses suggestions of them being anything more sinister than a bunch of people who share the same views as ludicrous. He said: "I was once taught by Michael Beesley, Eileen Marshall is my wife, Michael Beesley and I run a lecture series. We would all have some affinity with the Austrian school."

But the hostility to them shows no sign of abating. The forthcoming lectures will be minutely dissected and added to the bulging files. "You only have to see the words they use. They're a good clue. They are 'Austrian' words," said a utility insider, pointing to the titles of the talks.