Are industry regulators a danger to the public?

[Vlad_Dracul]

I am sure we are all aware of industry regulators. They all have similar sounding names such as Oftel,Ofwat,Ofgas,Ofgem etc.

Industry regulators were first created as the champions of the people. They would beat these big companies into submission, the ones who had supposedly been ripping off the public for years. The baying public mobs were only to ready to give their support. But where are we now? In many cases the industry regulators have not been content to keep a watchful eye of big industry and to work with such industries in the best interests of the consumer.

The situation we have now is that such industry regulators are all powerful and do not actually work with industry in a co-operative sense. Their role now is one of the all powerful dictator which actually tells industry what to do.

Take for example OFGEM

http://www.ofgem.gov.uk/ofgem/index.jsp

OFGEM regulates the Gas and electricity industry.

In the gas industry, they have a periodic review, usually every five years, at which time, and after some deliberation, OFGEM tells the industry how much it is allowed to spend to operate in the coming years. Every time that a review has taken place, that review has said that they must cut costs and they specify exact figures.

So then, despite the fact that everything always goes up in price ie materials,labour costs etc. OFGEM continually expects industry to cut its costs by a significant amount all the time. The industry cannot argue back. They tried in the early days and lost so now they just doff their corporate caps and get on with it. Inevitably the only way they can make those cost savings is by cutting.

So year upon year upon year since privatisation of British Gas, there have been cuts cuts cuts and more cuts,all enforced by ~OFGEM.

What we are talking about here is the bit of the gas industry that deals with Gas distribution i.e pipes in the ground,and the gas emergency service. The person who will turn up 24/7 whatever the weather to save you in a crisis.

About five years ago there was a crisis. There were a series of big gas explosions and fatalities. Obviously there had been too much cutting and too little investment and the balance had tipped too far. Articles appeared all over the press and people began to wonder how this could happen. The Regulator authorized a great wadge of spending to save things (and maybe themselves)

Time is a great healer,memories fade and again we are seeing some incredibly swinging cuts. For example,National Grid has just been told that it must cut its operating costs by over 30% in the coming few years. This is a phenomenal amount and I firmly believe that the public are now being put at greater risk because of such financial pressures.

Other gas networks have received similar cuts.

We are seeing the creation of another railtrack where a responsible industry is being strangled by a regulator which wants everything done as cheaply as possible.

Is cheapest good enough to ensure the safety of you,your home and your family?

[BBKing]

Hmm, I think I'd better go and check British Gas' profits and director's salaries. The poor guys must be on the breadline with all these cuts.

The regulators would be unnecessary in a proper free market, the fact of their existence indicates that in many privatised industries it's not really a proper free market, it's a rapacious monopoly with a taxpayer funded bunch trying to control it. Still that's Friedmanite voodoo economics for you (it was thought that the market would develop, but it hasn't).

You forgot the Office of Rail Regulation. For some reason that isn't shortened to OffRail. I'm rather perplexed that you think Railtrack was a responsible organisation, can you explain this opinion which is 180 degrees away from what the rest of the world thinks, unless it's being responsible for several deaths.

Everything doesn't always go up, by the way. Except residential gas prices, apparently (wholesale prices have *fallen* recently).

[foreverwar]

Would that be the same National Grid that delivered a forecast-beating 12 per cent rise in first-half pre-tax profits to £872m (so that could be £1748m for the whole year).

Would that be the same EDF Energy who made £580m pre-tax profits in 2005.

Would that be the same E.ON UK who posted a £300m half-year profits (so that could be £600m for the whole year) in 2006.

Cheapest is not good enough, but while the profits above are being made, excuse me if I don't cry too hard for the distribution companies.

[Vlad_Dracul]

Originally Posted by BBKing

Hmm, I think I'd better go and check British Gas' profits and director's salaries. The poor guys must be on the breadline with all these cuts.

The regulators would be unnecessary in a proper free market, the fact of their existence indicates that in many privatised industries it's not really a proper free market, it's a rapacious monopoly with a taxpayer funded bunch trying to control it. Still that's Friedmanite voodoo economics for you (it was thought that the market would develop, but it hasn't).

You forgot the Office of Rail Regulation. For some reason that isn't shortened to OffRail. I'm rather perplexed that you think Railtrack was a responsible organisation, can you explain this opinion which is 180 degrees away from what the rest of the world thinks, unless it's being responsible for several deaths.

Everything doesn't always go up, by the way. Except residential gas prices, apparently (wholesale prices have *fallen* recently).

A little clarification is required.

The area of OFGEM regulation to which i am referring is the bit that regulates the distribution of natural gas,a rahter dangerous and explosive substance.

British Gas has no part in this. British Gas is merely a seller of gas and a provider of services such as appliance installtion and maintenance.

The businesses which are involved in distribution are businesses such as National Grid,which distributes Gas in the majority area of England and is also responsible for the gas emergency service. Now then,national Grid,the global company,makes a good profit ,something which you alluded to. Its Gas distribution arm though is ring fenced and cannot be cross subsidised by the larger business. This is becuase the gas distribution arm is regulted i.e by OFGEM.

Now then,back to my original post,we have a situation where gas distribution is ring fenced and continually brow beaten by OFGEM to reduce costs. National Grid and other distribution comanies have to do as OFGEM says. OFGEM have been squeezing like this for nearly a decade and the truth is,there is nothing left to squeeze. Yet only a few omnths ago,OFGEM issued its interim price control formula and insisted that National Grid cut its operating costs by over 30% !. Nat Grid could not argue,it has argued in the past and lost. There is nothing left to cut,safety will be compromised,the public are at increasing risk. Its not only National Grid. Other parts of the gas network in other parts of the country have the same issues.

You can only cut for so long and when there is nothing left to cut then there is danger and peril.

British rail,in the old days were an integrated,solid,sound engineering based company. True they were not perfect. They hacked it to pieces,regulated it to death,people died,people will continue to die. Same thing.

Why not regulate airports and aircraft in the same way? That really would be a very public danger though,planes crashing,hundreds of deaths.

Gas? its a hidden danger,under our feet ,in the streets,hidden,gas mains as wide as 4ft in diameter and running at pressures as high as 400psi or 20 Bars in an urban environment,maybe past your front door. When the failures comes ,the result is the same,people die or get injured or lose their homes.

Rampant and needless regulation and penny pinching cannot be placed before public safety.

[foreverwar]

And should profits come before public safety? Poor old National Grid making £872 million profits every six months - shouldn't they re-invest some of that?

And Northern Gas Networks made a profit of £50million on a turnover of £250million - a lot of companies would love a 20% profit margin - perhaps they could use some of that to improve network distribution safety, and they could gain tax deductions for the Capital Expenditure.

[Vlad_Dracul]

Originally Posted by foreverwar

And should profits come before public safety? Poor old National Grid making £872 million profits every six months - shouldn't they re-invest some of that?

And Northern Gas Networks made a profit of £50million on a turnover of £250million - a lot of companies would love a 20% profit margin - perhaps they could use some of that to improve network distribution safety, and they could gain tax deductions for the Capital Expenditure.

That is exactly the problem, the big parent companies such as national grid are making big profits,nothing wrong with that,they are public companies and succesfull ones at that BUT,and I'll repeat myself, UK Distribution,a subsidiary of National Grid is ring fenced and is not allowed to be cross subsidised by its parent >National Grid. UK distribution is the bit that is regulated by OFGEM which is forcing a 30% plus cut in operating costs for the next review period. So even though National Grid made 800 plus m profit,it cant bail out its UK distrubtion bit becuase OFGEM wont allow it. UKdistribution is therefore starved of investment and income,it manages urban gas distribution and gas emergencies,its being throttled by the regulator and there in lies the danger.. The same is repeated across the other distribution networks such as the others you mention. Also becuase of the squeeze, people are leaving to find jobs elsewhere and not being replaced. There is almost zero recruitment. Perhaps they will eventually get some Polish gasmen and they can do the job 24/7 for £5 an hour? Thats what OFGEM would like.

[Chrysalis]

The public perception of these regulators is they are here to protect consumers interests, ofcom in particular however will hardly ever respond to consumers concerns directly and will usually only react to competitors. Their remit seems to be just to ensure retail competition and to satisfy business interests. They certianly appear to be wary of doing something that would damage profits of the companies they regulate.

Knowing how toothless ofcom are I dont have much faith in any of the other regulators either.

[foreverwar]

Originally Posted by dooper786

That is exactly the problem, the big parent companies such as national grid are making big profits,nothing wrong with that,they are public companies and succesfull ones at that BUT,and I'll repeat myself, UK Distribution,a subsidiary of National Grid is ring fenced and is not allowed to be cross subsidised by its parent >National Grid. UK distribution is the bit that is regulated by OFGEM which is forcing a 30% plus cut in operating costs for the next review period. So even though National Grid made 800 plus m profit,it cant bail out its UK distrubtion bit becuase OFGEM wont allow it. UKdistribution is therefore starved of investment and income,it manages urban gas distribution and gas emergencies,its being throttled by the regulator and there in lies the danger.. The same is repeated across the other distribution networks such as the others you mention. Also becuase of the squeeze, people are leaving to find jobs elsewhere and not being replaced. There is almost zero recruitment. Perhaps they will eventually get some Polish gasmen and they can do the job 24/7 for £5 an hour? Thats what OFGEM would like.

National Grid Gas Holdings (who own and operate the Gas Transmission Network for Great Britain (their words, not mine)) would disagree with you (re their last Annual Report).

If you look at page 40 of the annual report, you will see that National Grid Gas Holdings made a profit of £2,683 million 2005/2006 - not National Grid, but National Grid Gas Holdings.
NationalGridGasHoldings

Our regulatory controls provide significant incentives towards improving operational efficiency by permitting the sharing of the benefits of increased efficiencies between energy users and shareholders. This year we have added to our impressive cost efficiency track record when UK gas distribution achieved its cost-efficiency target one year early.

On 1 June 2005 we completed the sales of four of our regional gas distribution networks for a total cash consideration of £5.8 billion. This creates, what is in effect, a new gas distribution market in the UK. We have retained four of the networks, which together represent the largest of the UK gas distribution businesses.
Our safety performance has continued to improve through the implementation of best practice with a further 44% reduction in lost time injuries. Once again, we exceeded all our safety related standards of service.
Investment
Investment in our networks remains a priority for the Group. Total investment reached £0.9 billion this year, up by 50% on last year’s £0.6 billion. We expect it will stay at or above £1.0 billion each year over the medium term.
Investment in UK gas transmission is primarily due to new infrastructure required to meet the changing gas supply pattern as the UK becomes a net importer of gas. This includes our largest ever project, connecting the new LNG (liquefied natural gas) terminals currently being built at Milford Haven. This will require investment of more than £750 million over the next two years.
Outlook
Our priority remains to create value for National Grid’s shareholders through the efficient delivery of our regulatory contracts, while maintaining the drive for continuous improvement in safety, reliability, efficiency and responsibility.

"UK gas distribution invested £444 million in the reinforcement, extension and replacement of the UK gas distribution network in 2005/06 compared with £359 million in 2004/05 (this excludes the investment in the four regional gas distribution networks that were sold on 1 June 2005). Replacement expenditure increased from £255 million in 2004/05 to £295 million in 2005/06"

[Vlad_Dracul]

Again i can provide further clarification.
The National Grid Gas transportation empire is split into two camps. One is known as UKT (UK Transmission) and the other is known as UKD (UK distribution)

The four regional gas distribution networks that were sold belonged to the UKD bit. The UKD bit is the bit that is ringfenced,regulated to death and cannot be cross subsidised by the wider NG empire. This is the very reason why NG sold a chunk of its UKD network. To generate a great wadge of cash (5.8B) which they then invested abroad. They have bought up various US based energy distribution businesses including Keyspan http://www.keyspanenergy.com/

and Niagara Mohawk
http://www.nationalgridus.com/niagaramohawk/

two name but two of its most recent acquisitions. The very reason why they sold the UKD operations was becuase they are regulated to death,NG have extracted as much value as they could out of them,so they sold them to generate cash to invest in the US businesses which still had good growth potential and could therefore generate shareholder value.

INVESTMENT.

Well yes they have continued to invest in infrastructure but note that most of this is in UKT (Transmission) the unregulated bit, the bit in which there can still be growth.

OUTLOOK
Yes it highlights expenditure and investment in UKD (distribution) The reason for this is that in past years,OFGEM continually squeezed how much could be spent on capital expenditure. Many of the gas mains in the roads have been there a long time. They are old,often cast iron,some even asbestos. Many are reaching end of life but for a long time,becuase of the squeeze on capex by OFGEM,they have just been repaired,repaired repaired. Constantly dug up,played around with instead of replaced. They couldnt be repalced becuase OFGEM has continually squeezed capex. About 5 or 6 years ago a tipping point was reached. There were some very high profile explosions,people got killed or injured in various parts of the country. OFGEM,probably secretly feared that the finger of blame would point to them. After all,it was they who had prevented expenditure on mains replacements for years,despite the fact that the industry kept telling them that it needed to be done. To save their own skins they authorised a massive ongoing project of expenditure within UKD to replace old mains. Thats why you see gasmen digging all over the place and replacing great tracts of main. OFGEM though want it both ways. In the recent periodic review it sought to penalise NG for working too fast and relaying too many mains. There was a conflict you see. The HSE was telling NG to replace x thousands of Km per year whilst on the other hand OFGEM was saying dont spend that much money. A direct and dangerous conflict. And one which is still ongoing.

[BBKing]

British rail,in the old days were an integrated,solid,sound engineering based company. True they were not perfect. They hacked it to pieces,regulated it to death,people died,people will continue to die. Same thing.

Not really, although you're right about BR. In many ways it was the loss of the integrated oversight and responsibility that led to things like Hatfield and the myriad minor/near misses. It's important to realise that we've had a solid railway safety culture and things like the Railways Inspectorate laying down the law since about 1888, in the aftermath of the appalling Armagh accident. The pre-BR companies were always complaining about being forced to spend money meeting regulatory requirements, so it's nothing new, except that they a) rarely made any money and b) managed to improve safety.

Why not regulate airports and aircraft in the same way? That really would be a very public danger though,planes crashing,hundreds of deaths.

? They're extremely heavily regulated in the West (maintenance, record-keeping, spare parts supply, duty time, pilot health, data recorders etc. plus people like the AAIB who are hard-core forensic engineers who make damn certain transgressions are known about) which is why they're extremely safe and have been getting safer (more flights, fewer crashes) and why running an airline costs so much*. Some parts of the world where it's not so heavily regulated have much more frequent crashes.

Proper regulation improves safety. That's why it's done, but it also helps that there's actually a working market in aviation. The worst thing you could do would be to lighten the regulatory load while still having a dysfunctional monopoly supplier.

* 'The best way to become a millionaire is to start off a billionaire and then set up an airline' - told of Richard Branson, but I think it got to him from someone else.

[Vlad_Dracul]

Originally Posted by BBKing

Proper regulation improves safety. That's why it's done, but it also helps that there's actually a working market in aviation. The worst thing you could do would be to lighten the regulatory load while still having a dysfunctional monopoly supplier.

*.

Ah yes i agree,but we are talking about a different kind of regulation there. The regulation which OFGEM applies is purely one relating to obtaining customer value and driving down costs. Even on its own website in which it lists its priorities, Safety is not listed as one of them ! It is purely interested in finance.

[BBKing]

Which isn't to say that there isn't a duty of care on the gas operators under H&S law, which is another form of regulation, to operate in a safe manner. If the gas operators are a) providing poor service, b) operating in an unsafe manner and c) making vast profits, all of which there is evidence for, then I suggest it's the gas operators* who are most in need of a kick up the backside, not the regulators.

* and the neo-liberal Thatcherite conmen who set it up of course. Comrade.