Incentive Regulation and Price Caps in the UK

This paper is a technical report that documents the author's experience with resetting RPI-X price caps for electricity distribution companies in England, Wales, and Scotland between 1993 and 1995. It begins with an overview of the author's earlier proposals for incentive regulation in British Telecommunications and the water industry. The report outlines the initial price caps set by the government during the privatization of these sectors and discusses the media's reaction to the proposed adjustments. The author reflects on the challenges faced while implementing incentive regulation amidst public pressure for stricter rate-of-return regulation. The paper also details the evolution of regulatory thinking during this period and suggests modifications to the regulatory process, emphasizing the need for negotiation with stakeholders and ongoing appraisal of market conditions. The insights provided may contribute to the future development of regulatory frameworks to address emerging challenges.