Back to the future? Regulating residential energy markets

Regulation in many markets is responding to ‘behavioural’ consumers who do not conform to the model of self-interested maximisation inherent in the classical economic models which informed the regulatory framework of privatised UK industries. This paper traces the discussion of residential energy prices from the opening of markets in 1996 and removal of caps on retail prices in 2002 to the call for their reintroduction at the 2017 election. Price discrimination has been a policy issue at several points on this journey, and its interpretation has changed as the market has moved from monopoly supply to a market with many firms. The focus has moved from company offers to consumer response and outcomes, incorporating the demand side as well as the supply side. As in many areas, regulatory practice runs ahead of theory, challenging economists to develop new models which can inform policy in such markets