Leading Article : Electric storm in the city

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The Independent Online
If they ever make the film The Regulator, they should not give the title role to Arnold Schwarzenegger. Judging by the performance of the electricity industry regulator, Professor Stephen Littlechild, muscular ruthlessness is not required for the part. Professor Littlechild is the man who has overseen excessive levels of profit-taking in the regional electricity companies. Benefits to the consumer have been considerably less substantial. Now that the war over privatisation is finished, the new clashes will be all about how people like the professor discharge their responsibilities.

In the old days of nationalised corporations, the public figures were men like Alf Robens and Sir Peter Parker, who became household names. They were the figureheads of organisations like the National Coal Board and British Rail, appearing regularly on Any Questions. They may have been exalted lords of bureaucratic empires - but they were at least visible.

Privatisation has meant their replacement with business people, whose main contribution to recent public debate has been a stout defence of their salaries. They are not paid these sums to relate to the consumer - their job is to increase the profitability and efficiency of their businesses. In most industries, of course, competition itself will tend to protect the interests of customers, who, if they do not like the price or the product, can go elsewhere. But there are no such disciplines at work in the monopoly utilities. The men and women charged with looking after the public interest are the regulators, the knights of Ofwat, Ofgas and, in the case of electricity, Offer.

Discharging this duty is not simple. Regulators need to strike a balance between the service and price offered to the customer and the need for the industry to be sufficiently profitable. It is of little use to the citizens of Britain if a major utility finds itself forced to under-invest.

Nevertheless, something has gone wrong in the electricity industry. The response by Northern Electric, one of the 12 regional electricity companies (RECs), to the recent takeover bid from Trafalgar House has lifted the lid on how the RECs have been coining it. Seeking to avoid absorption, Northern Electric is promising another massive (and unplanned) dividend to shareholders to persuade them to remain loyal. On close scrutiny, it seems all RECs are potentially far more profitable than was realised.

This is not to say that consumers have suffered through privatisation. Prices have fallen and services have improved. But there has been a clear failure to strike an equitable balance between shareholders and the public. It turns out that the RECs have been able to gain far more from enhanced efficiency than the regulator had been led to expect. Nor have the electricity companies allocated as much for structural investment as has, say, the water industry. The result has been a terrific benefit to investors (including pension funds), but not a correlating benefit to the public.

Professor Littlechild must have known, if only by keeping a close watch on share prices, that this was happening, and shifted the balance back the other way. It looks very much as though he was hoodwinked a year ago by the companies' assertion that there was limited potential for further efficiency gains. He made a mistake and he should admit it. If he does not, the regulator - our regulator - should be terminated.