Uk Domestic Gas and Electricity markets - Coursework Example

UK Domestic Gas and Electri markets The firm’s behavior The UK Domestic Gas and Electri markets play a significant role in Britain’s economy. Electricity and gas are fundamental services for businesses and households across the UK. Therefore, the office of gas and electricity markets (Ofgem) plays a key role to Britain’s wider economy and the energy sector in particular. The energy prices in Britain have not escalated despite the reduction in oil production globally. Their quality of service has tremendously improved and this improves the performance of their economy.

The energy industry in UK is divided into three different parts; the suppliers, distributors and the generators (Bye 2003, p. 52). The suppliers are companies who sell gas and electricity and they therefore interact with customers most of the time. The distributors are responsible for cables and pipes on the roads. The suppliers have contracts with those who distribute in order to provide these services. On the other hand, generators are in charge of generating the energy used in homes and business premises.

Competition in the electricity market was introduced later as compared to the gas. Currently, an average of 160,000 consumers changes gas or electricity every week. The present rate of switching is at 37% for gas and 38% for electricity which is higher as compared to other industries (Boogert 2006, p. 49). The reasoning behind the regulators There are various sectors in the UK which have powers to enforce competition. For example, the Civil Aviation Authority (CAA) which deals with the air transport, Office of water services (Ofwat), Office of communications (Ofcom), and Ofgem among others.

These sectors work hand in hand with the Office of Fair Trading (OFT). The OFT is the main consumer and competition agency in the UK. It has the responsibility of protecting all the consumers since it enforces competition law in all sectors. On the other hand, Competition Commission (CC) conducts investigations into major regulated industries and markets. Both the electricity and gas markets have been recognized as targets for corrupt selling techniques. As a result of this, the industry regulator has fined a number of supply companies for involving in unethical activities.

This became a major concern and Energylinx had to come in to provide an independent service that enables customers to search for details of the suppliers that provide gas and electricity cheaply (Alexander 2001, p. 79). The government mandated the OFT to work in conjunction with Ofgem to come up with regulation to protect the consumers of gas and electricity. In case of any appeal, the Competition Commission makes a decision on the basis that: Ofgem failed to reach a decision due to an error in the law or a factual error.

These actions together with the obligation that Ofgem had, represented a great change to the way of regulation in the entire industry (Nielsen 2006, p. 32). The decision to carry out regulation has led to considerable investment in the sector because the pace of investment and privatization is set to increase. The European Union regulatory; energy markets and competition policy have had considerable influence on consumers and Britain’s energy markets. EU Regulations and Directives have the possibility of impacting on the regulatory policy and competition in Britain.

All energy generation companies, distribution, transmission and supply in Britain are run by private companies, with British Nuclear Fuels (BNFL) as the only exception (Chong & Zak 2001, p. 98). The private companies are regulated through codes of practice and licenses. The decision of carrying out privatization in the energy industry has resulted in reliability, lower energy costs and great investment. The domestic consumer demand for electricity and gas in UK is highly inelastic. There are no substitutes in the market for these commodities.

At any given prices the consumers have to buy since they have no alternatives. Reference List Alexander, C 2001, Market Models: A guide to financial Data Analysis, John Wiley & Sons, New Jersey. Boogert, A 2006, Energy markets in UK, Cambridge University Press, Cambridge. Bye, T 2003, Energy markets in Europe, Oxford University Press, Oxford. Chong, E & Zak, S 2001, An Introduction to Optimization, John Wiley & Sons, New Jersey. Nielsen, R 2006, The little green handbook, Picador, New York.