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Regulation can't fix the energy industry

Let's stop pretending it can.

Photograph: Getty Images

Last week's changes to the energy billing regulations, represent the biggest regulatory change experienced by the industry since privatisation. In fact, they are some of the biggest changes to any regulation, in any industry, and are all the more ground-breaking for directly affecting the way that energy companies sell their products to the consumer. At first glance , this was a simple case of victory for consumers over the corporate world, but the situation is more complex. After all, there's something inherently wrong with the idea of a predominantly consumer "victory" - the right balance of market forces and regulation ought to result in a capitalism that works equally in the interests of producer and consumer. If that is not the case, then it's a clear indicator that something has gone wrong, and that the balance needs to be restored.

These new regulations will go some way towards achieving  that, but they certainly shouldn't be seen as a happy outcome. The costs of any regulation are commonly passed to the consumer, and these changes will be no exception. No regulation is ever set in stone, however, and business leaders in the utilities industry should not give up trying to make theirs the sort of industry that requires less regulation, and not more. Leaders in other regulated industries should also take note. There will be much to learn from how the industry deal with its new regulatory environment, but there is also much to learn from the circumstances that led to such drastic action.

Therefore, it makes sense to examine why the regulator felt compelled to act in such drastic fashion. Regulation may seem to be the lesser of two evils, but the point is that the industry's relationship with its customers should never have deteriorated to the point where that was the case. For business leaders in the utilities industry, the lesser evil really ought to be an investment in building a productive relationship - fuelled by more in-depth insights - with their customers. Indeed, businesses in any regulated industry ought to take this attitude. A more proactive approach to soliciting customer opinion means that management are aware of the strength of customer demand say, for simpler pricing.  The investment required to do so, and the potential losses incurred, will almost always be offset in the long term; if industry practices can produce satisfied customers, then they will have a satisfied regulator as well.

At first glance, it may appear that energy companies have simply played by the letter of the law, but it's really more a case of them forgetting that their fight is with each other, and not with the regulator. There's a lack of competition,  but that's not to say that there are too few energy companies for market forces to be effective - the UK telecoms industry is one of the best in the world, and has fewer major players than the energy market. Rather, energy industry leaders have come to focus on the regulator, and not their competitors. Accordingly, regulators should see promoting competition as a priority, and a huge part of that comes from seeing the voice of the customer as a business resource, not just a matter for the customer complaints department. In a sector with an ethic of genuine competition,  those companies that do not heed the wishes of their customers do not last long. For example, the OFT rarely chastises retailers for unreasonable pricing - consumers do a very good job of that themselves.

I have written previously for this magazine of how we as a public have a vital part to play in building better businesses, and the energy industry is no exception. While it may form a relatively mundane part of our consumer experience, it is nonetheless a costly one, and we shouldn't allow ourselves to be distracted from making our voices heard. Energy companies for their part ought to make a  greater effort to listen, and to act upon what they hear; not only might they find advantages for their business, but the regulators would no longer have to interfere so strongly in the industry. It is right that  the state should step in when business practices within an industry leave consumers with few good options. However, it is the proper function of businesses to provide consumers with as many good options as possible, and that is the case in regulated industries as much as it is in those elsewhere in the economy. If customers are not forthcoming with their opinions then business leaders should do more to obtain their input - surely companies would rather meet the demands of their customers, rather than leaving it to the regulator to do so?