Regulation and electricity prices

Under the RPI-X form of regulation, the change in average prices charged by a utility may not exceed the increase in inflation, as measured by the official Retail Price Index, minus X, a percentage reflecting the excess of a target growth rate of efficiency for the regulated industry over the average growth rate of efficiency for the whole country. RPI-X regulation sounds like a simple formula, but this article starts by examining whether it really is. Then, avoiding the interesting, but difficult, counterfactual question of how electricity prices have differed from what they would have been without privatisation and regulation by OFFER it demonstrates that no precise description is available of how they have in fact moved. The figures that it ends up with are therefore only inadequate approximations. Thus regulation cannot, and available price measures do not, apply recognised state-of-the-art principles.