Many happy returns?
Many happy returns? The consumer impact of price controls in regulated networks
Consumers are charged millions of pounds each year in unnecessary payments to big infrastructure firms. These costs are hidden in water and energy bills, or factored into the prices of tickets for travel.
The extent of overpayment has increased since the financial crisis as regulators, who set costs and charges to consumers, have not adjusted sufficiently to the change in financial circumstances.
As regulators contemplate future price controls, or begin work on mid-term reviews for those already underway, they must take a hard look at the profitability of infrastructure providers.
These licensed monopolies face no competitive pressure in their core business. The security of their market share is guaranteed by regulation. Yet despite the inherently low-risk nature of their business, they have been able to make generous returns – frequently double-digit returns, in the case of energy.
At a time when the cost of living has become a prominent public concern, these profit margins far exceed what is needed to ensure the continued provision of essential services.