Competition among utilities will benefit the economy and jobs

COMPETITION in energy and communications could provide substantial benefits for the economy, but the methods used to regulate this competition will be a key seminar in Dublin has Certain forms of regulation could hinder the development of competition, Mr Patrick Massey, director, and Ms Paula O'Hare, legal adviser to the Competition Authority, said.

International experience shows' competition in energy and telecommunications has proved successful and has resulted in increased efficiency, lower prices and improved quality and range of services to consumers, they say in a paper presented to the Statistical and Social Inquiry Society of Ireland.,

"In an open economy, such as Ireland, competition in energy and telecommunications would enhance the competitiveness of firms in the traded goods sector by lowering input costs, thereby leading to higher levels of output and employment," the authors said.

The authors believe the objective of regulation should be to prevent anti competitive behaviour, but to allow competition rather than attempt to manage the market.

They said this could best be done using a combination of "sector specific" rules to deal with specific issues, operating in tandem with existing competition legislation.

Mr Massey told The Irish Times that it would not make sense to, exclude public utilities from existing competition law when trying to regulate them, because much of what is contained in current legislation would have to apply.

The wide ranging paper suggests ways to combat situations which could hinder likely competitors in telecommunications, gas and electricity.

"Potential problems arise because competition might be prevented if new entrants were denied access to the transmission and distribution systems in gas and electricity and the local loop in telecommunications which constituted natural monopolies," they say.

Firms which both own such networks and supply services have clear incentives to deny new entrants equal access to the network.

One solution to this problem would be to hive off the natural monopoly elements of the industry for example the national grid and local distribution networks in the case of electricity and gas into a separate company.

The alternative to this is to try to guarantee access to new entrants by regulation, the authors say.

They point out that this has been tried in many countries. "It suffers from the fact that the incumbent still has a strong incentive only to provide access on less favourable terms."

The authors say decisions already taken at EU level would require a body competent to deal with issues such as the regulation of interconnection charges for the use of the transmission and distribution network and that any such body be independent of ministerial control.

"The tasks assigned to such a body by EU legislation are, how ever, limited and would not cover all of the issues involved in liberalising the energy and telecommunications sectors," the authors say.

The authors predict that, even if competition is introduced, existing utilities are likely to remain dominant in individual markets for some time and thus will have considerable scope to exploit their, market power in downstream service markets.

They dismiss the argument that competition would result in "cherry picking", whereby new, entrants concentrate only on the profitable elements of the business. They say this has not proven to be the case in other countries, and EU rules combat this.

. An independent regulator will, be appointed to oversee the liberalisation of the telecommunications market, the Minister for Communications, Mr Lowry, has already said. There are also plans to introduce an authority to regulate all public utilities within about a year.