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REGULATION OF BUSINESS

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Introduction

Assignment 1 Faculty of Organisation and Management REGULATION OF BUSINESS Select one of the privatised industries and critically examine the extent to which regulation has proved effective in the period of 1997 - 2003. Sheffield Hallam University, school year 2004 - 2005 Introduction It was under the Thatcher government that the era of privatisation started and it was "the most radical change in the 20th century British politics" (Young, 2001, p. 1). From 1984 to 1991, the telecommunications, gas, water and electricity industries which were under government control, were sold to become privately owned and controlled. The privatisation of the electricity industry occurred in 1990 but had already begun in 1987 with the creation of a programme describing the different tasks involved in privatising the generation, transmission and distribution of electricity. According to Young (2001), the considerable number of privatisations can be explained by the intention of improving the efficiency and a more economic reason concerning the proceeds of the flotation. As far as the case of electricity is concerned, David Parker (1999) argues that the main reason was to promote competition and that all the producers of the four activities (generation, transmission, distribution and supply), could be divided into separate corporations responsible for each activity and open to competition. After the privatisation of the electricity industry, a regulatory office was created, the Office of Electricity Regulation - also known as Offer. The need for regulatory bodies such as Offer can be explained for example by the requirement of preventing unfair competition when several companies work in the same fields or provide customers the same service, or the need to protect the work force. ...read more.

Middle

On a more economic scale, they need to improve and encourage efficiency and economy, to protect the public from danger and to secure the long term energy supply. Ofgem is also required to be respectful of the environment. For example they, have to take care that the electricity and gas industry do not damage the environment. Furthermore, in the case of companies, Ofgem delivers licences which describe the behaviour companies must have toward customers to make sure they provide a reliable and safe service. They can also force a company to apply the law and particularly licence obligations by imposing financial penalties when customers have for example being injured. Moreover, Ofgem is required to control prices for several institutions : * The National Grid Company for the high voltage electricity in England and Wales * the twelve RECs in charge of the distribution of electricity for England and Wales. The price control is a key issue to guarantee that "monopolies do not abuse their position and provide companies with a future level of revenue and appropriate incentives to meet their statutory duties and licences obligations"(www.ofgem.gov.uk). Money earned by a monopoly business is also constrained to regulation with the RPI-X price control reviewed modified every five years. The RPI-X is a method used to "control prices, not profits, and encourage efficiency within the company"(www.ofgem.gov.uk)". Companies are also encouraged to provide the best service possible by being rewarded or even penalised depending on the quality of their service. III- Benefits and drawbacks of regulation The positive or negative effects created by the regulation can be seen in various fields such as economy with the variation of prices, environmental with the emission of toxic gas ...read more.

Conclusion

The Electricity association annual report pointed out that the accident rate in the Electricity industry has been decreasing since 1994, from about 1,1 accident for 100 employees to 0,4 in 2002 (2003 ,p. 18). And in the case of the members of public, the tendency is the same : about 300 people injured at work in 1991 to 195 in 2002, and 110 people injured at home in 1991 to 160 in 2002. In 1999, the Electricity Association which works in relation with Ofgem, created a program called Safelec 2000, which was updated at the end of April 2002. Its aim is to improve health and safety performance. Companies have also developed measures and targets to achieve in regard to the Safelec program, especially for distribution and generation. Even if the number of injuries recorded is low compared to other industries, 0.4 accidents per 100 employees is still too much and the industry should keep on making prevention especially to the members of public, about the risk electricity constitute. Conclusion To conclude, regulation of privatised industries is necessary not only to protect the consumers' interest, but as well the environment, the health and safety of people and the economy. Regulations needs also to be updated regarding to changes that appear and may affect its efficiency. It has been shown throughout this essay that regulation could prove effective in certain areas but could also be subjected to some problems. The decrease of prices was one of the most remarkable change after the privatisation of the industry and when the market fully opened to competition. It has benefited the consumer as well as the environmental measures. However, in the matter of health and safety or even social issues such as fuel poverty, it is widely agreed that regulation could be improved. ...read more.

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