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The Privatisation Of The Uk El

4817 words - 19 pages

Introduction Since the privatisation of the British electricity industry in the early 1990's the power industry has gone through major structural changes. As with most privatisation of former public companies, (such as the privatisation of British Telecom and British Gas), the government wished to see increased efficiency in the production of electricity.By privatising, the government hoped that the incentive of higher profits would act as a reward for efficiency, meaning that more effort would be made in research and development of new techniques so as to make production more efficient. In order to pass savings onto the consumer, the electricity companies would have to work under certain restrictions imposed by the government and the electricity regulator, (OfGen), which were designed to prevent private monopolies exploiting the consumer.The aim of this project is to investigate to what extent the industry has changed since these changes were implemented and how the price of electricity to consumers has been affected by these changes.The privatisation of this industry has seen four main stages: Firstly, British Electricity, a government run industry which was effectively a public monopoly ran from the 1960's until the first step to privatisation in 1990. This stage on the road to privatisation was to introduce competition in direct supply for customers with over 1MW in demand (around 5000 sites), thus introducing the idea of competition into the industry, allowing a small proportion of the market to be run to a certain extent by the market mechanism.In 1994 the threshold level above which competition was allowed was reduced to 100kW which added another 50000 customers to the competitive industry, meaning that approximately half of all demand for electricity was subject to competition.By 1995 the regional electricity companies were in full existence and were in the position of having a private monopoly in their particular region, especially as the regional companies were now able to sell to larger markets as the companies had now become the sole providers of electricity in their own particular areas. This effectively meant that in a particular area each different company was in the position of having a private monopoly (although this was regulated by the government).However, in 1997 this situation changed for good, as it had been realised that the monopolies had not introduced new technologies or lowered prices for consumers (as the privatisation had been intended to do) but had simply led to the exploitation of consumers. This was because the government was not regulating the companies well enough, and because they faced no competition in their own regional area, they could afford to become less efficient and so not providing the benefit to the consumers which they had been intended to do. By 1997 it became clear that the government had to intervene into the market and at this point de-mutualisation came into existence. This meant that from 1997...

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