The Findings of the OFGEM Report with Regard to the UK Energy Market - Essay Example

The Findings of the OFGEM Report with Regard to the UK Energy Market The Findings of the OFGEM Report with Regard to the UK Energy Market There are various issues that are discussed in the OFGEM report, which are observed to be affecting the organizations that are involved in the energy generating industries such as those that deal with oil and petroleum. It is essential to note that success and proficiency in business organization is determined by a number of factors. These are with inclusion of the financial position of the organization, the internal and external environment, and more significantly, the management of the organization. The management integrates various operational organs and professionals who are involved in complex decision-making processes, which have an enormous impact on the performance of the entire organization. The major objective of a for-profit organization is to maximize profit and reduce expenses; increase output at low input. For this to happen, the management needs to devise effective decision strategies and operational strategies, which consequently aid in improving the working within and around the organization, thus enhancing performance. The organizations that are perceived to be international companies, and deal with fast going products such as energy generating organizations tend to control the nature of business organizations that are emerging in the industry. For instance, Organization of Arab Petroleum Exporting Countries (OAPEC) and Organization of the Petroleum Exporting Countries (OPEC) have different powers and functions that enable them to trade in the oil industry. Some of the powers of these organs are similar because they are operating in the same industry of energy. This paper focuses at not only offering the findings from the OFGEM report, but also in addressing issues associated with the powers of the major organizations to the performance of the energy industry in general. In attainment of this, evidence-based evidences will be discussed and some conclusions made on the influence of the big six energy firms in UK on the industry and the energy market. Discussion of the Findings of the OFGEM Report Energy industry is considered to be an international industry in the economic and trading system whose main focus is coordinating the policies of the countries that produce, manufacture and export oil among other energy products. According to some of its scholars, the goal of the industry is to ensure that there is security for the income of companies in the industry. More importantly, they try to ensure that the prices of energy resources are well distributed to all trading nations across the world. According to the policy statement of the OFGEM report, there is a right for all the participating nations to exercise sovereign imperviousness for the activities and actions that they undertake, an indication that the energy industry is not considered as a subject to competition law in the typical way. The influence of the six UK energy firms to other energy-producing organizations began in the 1970s, when the prices of oil were not stabilized due to the 1973 oil crisis (Kelly, 1980). The fundamental goal of these organizations is modified to accommodate selling of energy resources for social-economic growth of member countries which are faced by economic predicaments. OFGEM is viewed as the most significant body in the energy producing organization that governs the trading practices and the economic activities related to energy production. Its powers are evident in its exercise to regulate the prices of energy across the United Kingdom alongside other relevant parties in the industry (Giraudet, Bodineau and Finon, 2012). The policies of this body are clearly seen to evade the competition law which mostly stands with the perception of increasing the prices of the energy products when the demand is high and supply low, and lowering the prices when the demand is low and supply is high according to the demand-supply principle. In order to understand the relative power of the six major UK energy firms, it is essential to consider the relationship between the power-cycle theory and hegemonic stability theory. Reflecting on the power-cycle theory, it is evident that the dynamic systems, when the power of one nation is in fluctuation, help in addressing issues related to gains and losses in relative powers between the participants in the entire nation globally. The organizations have been observed to resemble a cartel in a general case, and the initial stages of development have been perceived to be politically driven. This is an indication that all the processes and practices in the energy industry are greatly influenced by the political sectors of the respective nations. The political powers and the running governments of the energy-producing organization have been seen to have great interest in controlling the energy industries because energy in those regions in UK is considered to beneficial to the population, hence the backbones of their economies. One of the elements that trigger economist to consider the powers of the energy organizations to be related to those of political systems is the voting system that it used in selecting its leaders. This impression of power causes some influence on the international political systems. According to the observation of various economists and political analysts, the powers of the energy producing firms are unified and are aimed at achieving the organizations’ economic goals. It becomes the obligation of these firms to match the supply with demand before making decisions regarding the pricing systems that are to be used. They also consider other elements related to production, supply and distribution of oil and petroleum products like costs and risks involved in supply of the commodities. This implies that the groups not only consider issues affecting the international trade where the member nations are affected, but also consider the important domestic objectives featuring these nations. Taking UK states as an example, it is evident that the nation’s position is unique in potential production growth, and this has enabled the nation to grow and expand in the energy industry. It is, however, due to the help that large energy firms offer to other energy-producing organizations that the governing policies in the member organizations allow trading with UK’s energy-generating firms due to political instability of the country. This implies that the powers of these trading bodies are embedded on the objective of protecting the member countries from issues that may affect the trading operations. These issues are with inclusion of instability in the political systems of the nations and poverty among others. The major focus of these bodies is stabilizing the prices of oil, its production and distribution in favor of the political, economic, cultural, historic and religious aspects of the member countries. For instance, as the production of energy products increases in UK, other organizations specialized in the energy industry perceive a zero-sum relationship in terms of their respective markets. This is a threat to the relative powers of other organizations in the industry because they are obliged to sacrifice some of their trading measures in an attempt to neutralize the issues in their member state. Consequently, this affects the economic growth of these nations among other sectors such as political legitimacy. The international influence to maintain the quota systems is also deemed against the interests of the member countries. Application of the power-cycle model in understanding the motivations and challenges that regularly affect the large energy generating firms in UK’s behavior in the energy industry is important. It helps in comprehending the fact that these trading organizations aid in stabilizing the domestic politics of the respective member nations, their cultures, and the position they stand at in the international trading systems. These bodies have powers to regulate current trading policies in the energy sector, and more importantly address the unforeseen predicaments in the industry (Nick, Oliver and David, 2010). They have the potential and capability of structuring and altering the economic and political events that seem to affect the functionality and performance of the oil industries in the member countries. Considering the aspect of the effects of the powers of the big six energy organizations to the policies of energy industry, it can be argued that just like other cartels, energy generating firms must consistently ward off their own individual destruction. This is to the sense that when the prices are low, the national revenues are reduced due to the production cutbacks and this eliminates some of other cartels in the oil industry. Most government policies are forced to change or be modified due to the powers that these two organizations among other cartels have on the oil industry. These cartels are responsible for the changes in prices depending on the demand of oil, the quantity of supply and the availability of oil, and this is irrespective of the government policies of the member nations. The above argument is a confirmation that the powers of the six organizations not only affects the organizations alone, but also affects the government. With decline in production of energy in the member organizations of some energy-producing groups, there is a significant change in the political system of the nation. This leads to changes in the policies of emerging or small energy-producing firms to suit the economic needs of the public and the government. The influence of the major UK energy firms are closely related in their functionality because they aim at reducing the influence of the government in the production and sale of energy products such as oil and petroleum (Giraudet, Bodineau and Finon, 2012). The impacts of these powers on the policies of energy industry are diverse, and these are with inclusion of frequent modification of these policies to be in line with the economy of the nations among others. Thus, according to the OFGEM report, it is essential for the major organizations in UK to understand that the influence they have on the energy industry is huge, and that the ultimate solution to the challenges in the industry in UK is allowing the contributions of other minor firms. Improvement of the performance of an industry in the energy sector lies on the management of the firms, and more importantly, on the government, and recognition of other firms in the industry irrespective of their size. References Giraudet, L. G., Bodineau, L., and Finon, D., 2012. The costs and benefits of white certificates schemes. Energy Efficiency, 5, pp. 179– 99. Hirsh, R. F., 2003. PURPA: the spur to competition and utility restructuring. Electricity Journal, 12(7), pp. 60– 72. Joelson, M. R. and Griffin, J. P., 1975. "The Legal Status of Nation-State Cartels Under United States Antitrust and Public International Law". The International Lawyer, 9 (4), pp. 617–645. Kelly, J. B., 1980. Arabia, the Gulf and the West. Basic Books. Nick, A. O., Oliver, R. I., and David, A. K., 2010. "The status of conventional world oil reserves – Hype or cause for concern?". Energy Policy, 38 (8), pp. 4743– 4749. Robert, P., 2004. The End of Oil: The Decline of the Petroleum Economy and the Rise of a New Energy Order. New York, NY: Houghton Mifflin Company Read More