Regulation of the utility industry is one of the most litigious issues in not only the U.K but also in other nations across the globe. In the past years, it has attracted the attention of various stakeholders, drawn from the increasingly multifaceted residential, commercial as well as industrial clients. The past decades witnessed monopolistic setups that enjoyed huge profits from an increasingly resentful consumer unit. However, with the recently established regulations, published information has indicated a considerable reduction in the overall costs of utilities. Similarly, the past decades have seen considerable development within the U.K’s utility industry. These include the dismantlement of the initial extensive monopolies, which conscientiously created a web of influence across the dissimilar utility sphere that culminated in high utility costs.
Robinson (2002) gives evidence of implausible increments in the cost of indispensable utilities prior to the introduction of stringent regulations that substantially decremented the huge expenditures. Similarly, according to Wright (2005, p. 2), it is clear that the observable decrements in utility costs across the U.K is the consequence of the subsequently introduced fierce competition amid the key players within the industry over the past decades. This write up is a critical exploration of the utility industry in the U.K. It assesses whether there is an equitable consideration of the interests of both the clients and service in the established utility regulations.
The privatization in the 1980's
The onset of the 1980s witnessed a massive privatization of the foremost utilities across the U.K. Saal (2002, p. 4) observes that the privatization efforts were influenced by the need to establish a competitive utility service provision through elimination of the monopolistic practices that had until hitherto prevailed within the industry. Reportedly, these needs witnessed the steady conversion of the utilities to individualistic ownerships, starting with the telecoms at the turn of 1984. The subsequent years witnessed further privatization initiatives, marked by the conversion of the water and sewerage system in 1986 and the electricity supplies in 1990. Similarly, the railways system assumed such operational status in the interval of 1993 and 1996 (Saal 2002).
According to Wright (2005, p. 29), it is apparent that this decision to revert to privatization was a blatant rejection of the preliminary acceptance of the utilities organizations as essential monopolies. Stern (2003, p. 2) observes that in agreeing to privatize the utility sector, the state recognized the need to inject an accelerated competition to a sector that had stagnated for decades. Furthermore, the state envisioned a stringent competition amid the privatized system that would result into considerably reduced prices.
According to Dnes (1995), the accelerated privatization adopted a cost effective model, anticipated to initiate a competitive market ideals within the sector. Reportedly, the new system aimed to realize this notion through an establishment of an increasingly competitive pricing within a predetermined price limits. Simmonds (2002, p. 3) agrees that given the natural statutes that govern price regulations, the realization of such limits required practicable incentive that could afford the price fluctuations within the established limits.
Bartle (2003) suggests that the establishment of such systems required stringent control to bar political influence and other related issues from interfering with the competitive nature of the new approach. Reportedly, this witnessed the establishment of such organizations as OFTEL, which concerned itself with telecommunications, OFWAT, which dealt with water and sewerage utilities, OFFER, which dealt with electricity issues, and ORR, which concerned itself with the railway transport. Bartle (2003) suggests that the sensitivity of such utility spheres as gas and electricity culminated in the institution of OFGEM in year 2000. Bartle (2003) suggests that legal statutes, establishing the newer association, tasked it with monitoring, evaluating and ensuring an absolute control of the entire electricity and gas utility scheme.
Watson, Viney & Schomaker (2002, p.9) suggest that the privatization guidelines followed a comprehensive structure that hugely benefited from the then steadily altering aspects of monopoly. According to Schneiberg & Bartley (2008, p. 32), it is evident that the fiscal trends of the 1980s had aspects of the mainstream state controlled monopolies that could appreciably benefit the purposed clients if exposed to competiveness of private institutions. Additionally, privatization afforded a platform for further technological inventions and innovativeness amid the then diversifying industrial structure.
Watson, Viney & Schomaker (2002) cite the then emerging digital switching in telecommunications as a creation that could appreciably expand the extension of the telephony service through the competitive environment of afforded by privatization. Given this elaboration, it is evident the privatization efforts of the 1980s were not only aimed at enhancing the effectiveness of the utility institutions but it also aimed at creating the incessantly competitive marketplace that would culminate in reduced prices of essential facilities.
The Big 6 suppliers and their Monopolistic Competition
The forgone discussion has established that the key motivation behind privatization of the core utility organizations was to inject an essentially needed competition that would have induced a substantial cost reduction and stability. Clearly, the morale behind such establishment was to protect the numerous utility clients from the incessantly appreciating prices as well as the prominent volatility that was typical of the then energy sector. However, from their analysis, Stokes & Lomax (2008, p. 13) suggest that the established guidelines failed to optimally achieve their desired objectives. Observably, the result of privatization was the establishment of newer monopolies that controlled the various sections of the utility industry. Hill & Alexander (2006, p. 46) note that while there remains a considerable competition amid the leading utility providers, the anticipated overhauls of the essential monopolies has evidently failed to mature in its entirety.
Hill & Alexander (2006, p. 46) suggest that the contemporary energy fragment within the U.K’s utility industry comprise six foremost providers who enjoy the control of the entire utility industry. Notably, in comparable manner like other institutions that established over the privatization era, six industries have had a persistent control of the utility marketplace. Berge & Tyler (2008) suggest that these institutions command a huge market share within the retail client marketplace. Reportedly, upon their creation, the corporations maintained their monopolistic tendencies and assumed analogous market place portions, commanded by their parent institutions.
Bruijn & Dicke (2006) report that the conversion of the essential institutions to individualistic institutions achieved insignificant results in regards to the dismantlement of monopolistic ideals. Evidently, given the consequences, associated with the initial public monopolies, it is imperative to note that traces of such practices have prolonged to present schemes. Nevertheless, despite their hold on to the retail monopoly, present publications’ suggest an incessant decrement in their hold of the utility industry. Berge & Tyler (2008, p. 6) note that the six core schemes have continued to record steady annual decrementing marketplace influence at a rate of 2% and 4% for electricity and gas respectively.
Berge & Tyler (2008, p. 6) believe that despite the reported steady decrements in marketplace influence, the overall impact of such reductions remains minimal. They cite the characteristic movement of the varied clients within the utility supply scheme as the cause of such minimal effects. Reportedly, owing to the discriminate augmentation of prices of the varied energy sources, clients of the various initial monopolies have transferred from one supplier to the next within the six monopolies.
Berge & Tyler (2008, p. 6) give the instance of electricity utilization, where disasters of other regional electricity suppliers have rejoined the British gas, which is a former dominating gas supplier. Noticeably, the overall effect is the establishment of a network, where clients rotate within the former monopolies, making increasingly impregnable to other utility suppliers. Berge & Tyler (2008, p. 6) suggest that the rotary movement of the utility clients culminated into the establishment of over 70% marketplace share for the initial monopolies.
Another emerging argument is the sheer diversity within the utility suppliers. Parker (2004, p. 24) suggest that while the monopolistic nature of the six utility providers remains a critical issue, the number six itself is indicative of a huge diversity within the market. Evidently, in comparison to other marketplaces, the presence of six suppliers presents the clients with a considerable variety of choice. Parker (2004, p. 24) observes that proponents of the present utility supply network cite the substantial decrements in energy costs over the past decades, which indicate of the competitiveness of the supply industry.
Despite these observations, Berge & Tyler (2008, p. 6) suggest that the utility regulators have identified the impregnability of monopolistic cycle as a critical barrier for the entry of other suppliers. Observably, the surviving new entrants participate in dealings that are dissimilar to the mainstream services, rendered by the six monopolies. Similarly, the surviving non-monopoly entrants command a dismal fraction of the complete utility supply network.
Agreeably, the rampart privatization of the 1980s and 1990s relied on privatization frameworks that did not test all the anticipated factors that were critical in the estimation of future performance of the anticipated private corporations. The predictive models that proposed such consequences as lower prices as well as decremented costs have evidently failed. According to Surrey (1996, p. 92), the experiences of the past decades have clearly shown the critical faults in those designs. Observably, the factors that have influenced the critical aspects of the model have shown an immense dissimilarity amid the economic models and practicable models of utility supplies.
Pricing of the U.K’s six Utility Suppliers
According to Berge & Tyler (2008, p. 7), there is a vigorous competition for the available marketplace within the energy marketplace in the U.K. Noticeably, this has resulted in the establishment of dissimilar packages that cater for the varied needs of their clients. Weyman-Jones (2001, p. 8) observe that over the years the price per unit energy has significantly been appreciated. This is in line with the recent global energy difficulties that culminated in extensive rise in costs as well as rates not only within the U.K market but also across other nations.
In his analysis of the privatization and its consequences, Littlechild (2005) suggests that the significant competition within the energy sector emanates from marketplace competitions amid the incumbent monopolies. Reportedly, given the saturation of the present marketplace, the individual monopolies have expanded their market sizes through encroachment into competitor’s marketplace fractions. Triebes & Pollit (2010, p. 11) suggest that new entrants into the energy marketplace have survived by designing newer packages that are unique from the incumbent monopolies.
Joskow (2008, p. 21) notes that while prices of various utility packages remain increasingly high, certain packages have proved cheap and flexible for sections of the huge U.K market. This includes dual fuel package as well as such tariffs as debit tariffs, which have attracted a huge clientele base, given their ability to offer extremely decremented rates. Additionally, in response to the growing needs of the huge U.K marketplace, there has been an increased diversification of the tariffs offered by the utility providers. Joskow (2008, p. 21) suggests that domestic clients have an access to a huge variety of tariffs that suite the individual needs. Reportedly, such offers vary considerably and are dependent on such factors as the technology used, social standards as well as a wide range of fixed and flexibly varying packages.
Giulietti, Waterson & Waddams (2003) suggest that in the earlier years, a section of the incumbent suppliers practiced a discriminatory pricing policy that witnessed local clients hit with comparatively higher rates than distant clients. This resulted in local clients, reaching for other distant suppliers, who had intermittent supply. The result was a forced exposure to increasingly higher tariffs. Similarly, clients hoping for either gas or electricity supply were exposed to other costs, culminating into comparably higher overall energy rates. Barbose & Goldman (2004) suggest that such discriminatory practices equally included the mode of payments with dissimilar tariffs, assuming dissimilar ways of offsetting the varied costs. Reportedly, such payment models had discriminatory payment plans that increasingly inflated the overall costs.
According to Rutledge & Wright (2003, P. 9), the effects of privatization were too consequential on the energy utilities compared to other equally significant essential commodities. Mollard (2004, p. 4) agrees that the resultant monopolistic cases that comprised the privatization of both electricity and gas supplies needed a watchdog that could regulate the happenings within the supplying organization. Reportedly, huge price hikes accompanied the immediate establishment of the private institutions. Mollard (2004, p. 4) observes that this necessitated a quicker establishment of a body to evaluate the conducts of the suppliers and protect the exposed clientele base. Mollard (2004, p. 4) suggests that such concerns were the factors that resulted in the establishment of the office of and electricity marketplace.
According to OFGEM (2012), OFGEM’s core function is the protection of the huge clientele base within the UK’s energy utility segment. Reportedly, over the years, the watchdog has designed sophisticated means of achieving this functionality. These include promotion of competitiveness within the industry as well as stringent control of the functionalities of the monopoly organizations that are responsible for the gas and electricity interconnections. Evidently, their involvement with the gas and electric suppliers stems from the interests that clients have in such associations.
Additionally, they aim to control the ecological setups through stringent monitoring of emissions from such corporate associations. In their report, the national audit office (2010) suggests that the OFGEM equally has the responsibility of ensuring a secure supply from the established gas and electricity interconnections. Furthermore, they are responsible for the regulation of the varied applications of the utility products to prevent activities that are destructive to the ecological setup.
UK utility Regulators and Consumer Protection
It is evident from the preceding sections that the core energy supervisory body in the U.K is the OFGEM. Evidently, an examination of its core functionalities reveals various approaches that are practicable in consumer protection. Barti (2010, p. 256) suggests that the UK scenario has characteristic discriminative treatment of clients. Noticeably, these acts are persistent even with the stringent regulations, established by regulators like OFGEM. However, certain issues such as the discriminative regional billing as well as the difficulties, associated with clientele transfer from one supplier to another, are critical issues that regulators should seriously investigate. According to Crew & Kleindorfer (2012, p. 11), regulators should publish and supply information, regarding the guidelines, followed in transfer from one supplier to another. Evidently, the deficient information, regarding the stipulated guidelines, is the result of such discriminatory treatment of various clients.
The foregone discussions equally established that local clientele are increasingly susceptible to higher supply rates in comparison to distant clients. Evidently, this is the result of deficient information, regarding the rates, charged by the varied suppliers. According to Cooper, & Kovacic (2012), indiscriminate exposure of clientele to high rates is an illegal procedure. Given the evident dismal knowledge, concerning the varied guidelines in respect to suppliers, the regulators should carry out educational undertakings to edify the varied clienteles about their unknown rights. Furthermore, the social media presents a platform, from which such discussions can be held. This interactive socialization is significant in passing knowledge across a clientele base spread across a geographical divide.
Littlechild (2011, p. 19) observes that despite the considerable steps, made by the regulators in uprooting illicit practices within the utility supply network, mounting evidence shows that they are afflicted by numerous predicaments. Firstly, in certain cases such as the increasingly critical case of global warming consequences, the existent of legal frameworks are adequate to eliminate the possible sources of the predicament within the utility supply interconnections. Littlechild (2011, p. 19) suggests that lengthy legal battles within varied suppliers have culminated in incessantly constricted resources. This has negative implications in the enforcement of such disputed statutes.
In their analysis, Boersma & Vos-van (2009, 562) suggest that energy consumption was increasingly becoming a critical issue within the global stage. Numerous organizations are increasingly realizing the effects of ineffective utilization of resources. Observably, ecological protection has caused numerous discourses at international meetings. In light of this, it is plausible that various states will progressively pay more attention to energy consumption, costing as well as the supply networks to ensure sustainable utilization of the available resources. Cooper & Kovacic (2012) suggest that recent resolutions by international associations such as the U.N had formulated practicable guidelines that if implanted would not only offer optimal protection to the consumers but would equally resolve the legal and ecological barriers that has prevented sustainable energy utilization.
The privatizations in the 1980s classically aimed at resolving the then impregnable utility supply industry under sole control and ownership of the state. Energy and gas amid other essential services such as transport were exclusively under the management of state agencies that were ineffective and lacked motivation to better their service provision. In the subsequent years, various monopolistic agencies were effectively privatized, culminating in the creation of a newer breed of monopolies across the nation.
The big 6 utility suppliers in the U.K has remained a perfect consequence of the then untested and evidently ill advised policy. Their monopolistic competition remains consequential within the present societal setup. From the forgone discussions, it is evident that these organizations have adopted discriminate means of exploiting the varied oblivious clientele base across the U.K. However, with the institution of OFGEM, a considerable sanity has steadily encroached into the scheme. OFGEM has persistently ensured an absolute client protection as well as safeguarding the utility segment from environmental effects such as global warming.