Ensuring reliable and sustainable delivery of energy to business and households is crucial for the economy. However, the gas and electricity transmission networks are seen to be natural monopolies, so there is a need for regulation to avoid the potential market failure that could hamper the efficient allocation of resources in the sector.
Gas and electricity businesses were privatised in 1986 and 1989 respectively, and a regulatory framework was put in place under the aegis of Ofgem. This agency has applied price control regulation to the networks, and provided incentives for firms, initially to improve cost efficiency, but later encompassing other objectives covering aspects of service standards.
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