To set the price cap, the regulator tries to assess the situation facing the company over the next five years and, in particular, what sort of investments they will have to make. Yet the most obvious result of this system has been huge profits (and executive remuneration) for the privatised utilities. The regulator is there to make sure the private sector utility monopolies do not abuse their power by over-pricing. In each industry affected there is one regulator, acting alone and directly accountable to no one, who sets a price cap every five years. This limits the price increase allowed, usually to some rate lower than inflation. If only half the effort were put into making liberalisation work that now goes into arguing about new forms of regulation, consumers could eventually be a lot better off..

This would put right one of the basic flaws of Rec privatisation, which was the complete absence of competition in their local areas.But the timetable looks hopelessly optimistic. Last week the Commons select committee on trade and industry said the plans were a shambles, uncosted and a "potential disaster in the making". Even the billing and settlement systems have yet to be developed.Few would disagree that genuine competition could cut prices and give consumers a better deal in the long term. Competition has already begun for some commercial customers of the Recs, and - on paper - the Government has committed them to extending it to domestic customers from 1998. Pilot schemes to open the market start next year.There is no reason why the electric cables that run up to people's homes cannot be used in the same way as a common carrier for power from competing suppliers. British Gas is about to go through the same gruelling process with its domestic customers.

They involve the introduction of competition to what are now local monopolies.When British Gas was forced to open its pipelines for industry and commerce to competing suppliers of gas, it lost four-fifths of its market share and prices are still collapsing. This would introduce explicit rules for reassessing the price controls on a regular basis. Labour is also threatening a windfall tax to recover some of the past profits.And there are other changes proposed for the industry which could one day allow the regulators to take a back seat. Miscalculations are inevitable.The debacle will reinforce Labour's determination to reform utility regulation by introducing profit-sharing between customers and shareholders once profitability exceeds a certain level.

The predators, who sat tight while he was deliberating, decided he had not been excessively harsh on shareholders after all and the latest round of bids began.Suspicions have begun to grow yet again that Professor Littlechild has been too lenient It would not be entirely his fault. Under the present system of regulation, he has to make an extremely difficult judgement, up to five years ahead, of the speed with which the companies can improve efficiency and cut costs. In June, he decided to make the companies give their customers another pounds 1.25bn in price cuts over the next four years, on top of the pounds 2.75bn he announced 12 months ago. Professor Littlechild, realising he had been hoodwinked, reopened his price review. There was a huge rise in the value of the Recs, and it brought the predators sniffing around The crunch came when Trafalgar bid for Northern. In its attempt to stay in control, Northern's board promised to give more than pounds 500m back to its own shareholders if they backed Northern's fight.With most Recs also considering special rebates to their customers to deflect Professor Littlechild's wrath, the Northern defence opened everybody's eyes to the size of the pot of gold on which the Recs were sitting. He does this by setting price controls five years ahead.However, Professor Littlechild's first five-year review last year proved far too lenient.