The recent scandals that have hit Npower and Severn Trent, the electricity and water utilities, have made some of us nostalgic for the days when you could select any provider you wanted so long as it was the monopolist in your area.

Privatisation is now two decades old and the regulatory regimes should have bedded down. Do the recent abuses suggest that the system is not working? Some of the horror stories may be put down to unscrupulous agents abusing gullible customers but the very framework of regulation and accountability may be hard to reconcile with red-in-tooth-and-claw capitalism.

The pattern of problems in the water industry (where a number of companies have recently been fined for serious breaches) suggests that there is a systemic problem that is leading household-name businesses into regular misreporting of their performance.

Tony Wray, the chief executive of Severn Trent, tried to put the whole thing into the past by saying: “Those who were responsible for the customer relations mistakes are no longer with Severn Trent.” However, the warning to the water sector by Regina Finn, the head of Ofwat, that “any further attempts to deliberately mislead Ofwat could lead to even bigger fines in the future” suggests that vigilance and tough penalties will be with us for the foreseeable future.

How different, perhaps, from what was envisaged in the Eighties and Nineties. Then, as Michael Grenfell, of Norton Rose, explains, regulators and regulatory regimes were installed after privatisation primarily to protect customers from exploitation by private sector companies that had been given “natural monopolies”.

The aim was, Grenfell says, that regulation should be a proxy for competition in order to steer licence holders towards price reduction and raising service standards. “Regulation would give a replica of the benefits of competition while actually operating monopolies,” he said. So while the utility businesses had become privately owned they were under constant pressure, in the early days, from the regulator to achieve cost-cutting objectives.

Of course, nothing stands still for long. More recently the licence holders have had to take on major renewal of the infrastructure — especially in the water industry — and as the technology and marketing techniques have advanced so the regulatory issues have changed as well. Moreover, as Robert Lane, the head of regulated industries at CMS Cameron McKenna, points out, there is now much greater homogeneity between the various regulatory bodies since they were given the task of enforcing the competition regime ushered in by the Competition Act 2000.

Meanwhile, other agendas that were barely thought of in the late Eighties — in relation especially to sustainability and climate change — have been loaded on to them. As a result, said one leading utility lawyer (who preferred not to be identified): “There is no question the regulators are being increasingly proactive in the way they go about their work.”

Interestingly, this is also the trend in the US, especially in the energy industry. Kevin Lipson, of the Washington office of Hogan & Hartson, said: “The Federal Energy Regulatory Commission \ which, among other things monitors and investigates energy markets, is now taking a very, very aggressive stance. There are a lot of new players coming into the industry — for example, private equity and foreign investors — who are surprised by the fact that they are subject to FERC and by their level of exposure to fines that can be imposed both on businesses and individuals. We are talking about many, many millions of dollars.”

This robust enforcement regime in the US is having the desired effect. Fear of the huge penalties means that there are many cases of self-reported breaches going to the regulator. Whether Ms Finn’s warning will encourage a similar change in culture in the UK remains to be seen.

Despite the problems, the UK system is still, apparently, much admired around the world. Grenfell said: “Privatisation and regulation were pioneered in this country and our model has been emulated across Europe. We have set the standard that other countries worldwide now wish to follow.”

As evidence of this one only has to look at Saudi Arabia whose new Electricity Law in 2005 was based on the structure of the UK legislation (which the Saudi Government was keen to follow) to create the conditions for private participation and the introduction of a competitive arrangement for electricity.

A key contributor to the new legislation was Lane’s team at CMS Cameron McKenna, which advised the Saudi Arabian Electricity and Cogeneration Regulatory Authority on the drafting of the new law. Mr Lane remains bullish about the high esteem in which UK regulation is held internationally and points out that this country is still pushing ahead on leading-edge innovation. Despite the recent problems, he says, there is now a more grown-up approach to regulation on all sides in the UK and “less incentive to sweep problems under the carpet”. In any case, with the carpet getting smaller and the fines growing bigger, there should soon be no place to hide.

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