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Date: January 2017 | Sector: Energy | Energy retail & consumers | Expertise: Regulation & competition

Assessment of a regulatory framework for retail

We were asked by an economic regulator of the energy sector, to develop a framework for assessing whether their domestic retail energy market was delivering good customer outcomes. 

What good looks like

The regulator wished to use the assessment framework to: 

  • articulate its ambition of what success looks like for the sector over the next two to four years; 
  • monitor (using quantitative metrics) that the sector is on track towards meeting their stated goals and ambitions; and 
  • identify if/when policies have to be changed in order to meet their goals and ambitions. 

Our approach

We identified that the range of indicators used in the framework should cover the key characteristics of the successful competitive market: productive efficiency (i.e. pressure on suppliers’ costs); allocative efficiency (i.e. tariffs are aligned with customers’ cost to serve); dynamic efficiency (i.e. suppliers innovate and/or market entry takes place in order to reduce costs and improve services in the longer-term); customers are engaged in the market and are able to choose between a range of products that meet their needs; and service quality improves over time as suppliers compete to retain their customers. 

We defined a suitable set of indicators for the framework from a long list of potential measures of market outcomes. We then demonstrated a practical application of the framework using publicly available data.

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