A National Audit Office report has found that the regulators of Britain's privatised utility companies are succeeding in delivering lower prices and increased efficiency for consumers.

Forum Response: Water UK

A spokesman for Water UK told ePolitix.com: "Is the NAO taking a panglossian view of utility regulation? Has the NAO been captured by the regulators?

"The NAO's report on the economic regulation of network utilities, paints a picture of substantial gains in efficiency and quality since privatisation. But the impression it gives is of improvements driven solely by regulators, rather than including the regulated companies that have actually managed the change.

"This is a recipe for encouraging regulators to become complacent about their processes and methodologies. Certainly much of the report reads as if all is for the best in this best of all possible worlds.

"The key conclusion of the NAO report is that the successes achieved in the past may not continue into the future. The RPI-X formula has worked well, but has limitations that need to be addressed. We agree.

"The best bit of the report is the list of risks associated with RPI-X in the future. But the NAO then pulls its punches in identifying possible remedies.

"At present regulators determine outputs and levels of investment by regulated companies. Customers' and companies' views seldom receive adequate attention.

"But all the report asks the regulators to do is to '.consider publicly identifying the improvements . they are willing to allow companies to invest in'. A weak process for ensuring that the expectations of customers are adequately satisfied in the longer term, and that investment in long-term assets is not squeezed too hard to finance short-term price cuts.

"Another key stakeholder group is investors, whose interests can be damaged by arbitrary or unpredictable regulatory or political action. The report admittedly is not reviewing the events surrounding Railtrack, but the NAO's proposals again look weak. Regulators are asked to share models and set out principles in advance of price reviews - changes that are necessary but certainly not sufficient.

"The report does not address properly ways of handling difficult issues such as the predictability and consistency of regulation. These are principles to which regulators pay lip service but which in practice are often breached.

"All in all a missed opportunity to provide key answers to difficult questions."