Aspects of management of the electricity supply industry in a deregulated environment

M.Ing.Traditionally, the Electricity Supply Industry (ESI) organisational structure consisted of generating plant, transmission and distribution networks, a regulating authority and network control, all vertically integrated into single organisational structure. The result of the vertically integrated organisational structure, in other words an organisation where all the functions belong to a single organisation, and some of the organisation's functions are not the sole responsibility of one specific functional area, has been a captive market for the industry. No real market forces existed to control the industry. The responsibility for the industry was traditionally left in the hands of a single organisation, accountable only to the regulating authority. However, the industry has recently been subjected to incredible pressure to reform. The incentive to reform is based on various factors, ranging from sound business decisions, the need to reduce government debt, reduction of primary energy cost for key industries to political pressure. A common thread throughout the reform exercise is the requirement that competition must be introduced into the ESI to ensure market forces on the industry. To introduce competition into the industry, the authorities often start by unbundling the different functions in the industry. The second step is to identify the functions that can only operate effectively as a monopoly. The authorities then need to determine the optimum balance between regulatory rules and requirements and market forces on the. industry. By introducing the optimum balance between industry regulation, market forces and the specific needs of each country, the changes in the industry may result in long term gain for the industry's host country. The gains are often measured in reduced electricity cost and growth in industries dependant on the ESI as a primary energy source. The study incorporates a wide range of issues, starting with the drivers behind the deregulation effort through management tools to regulatory rules and requirements in the deregulated environment. The study evaluates the risks and benefits of the deregulated market, and examines the tools adopted from the financial markets and used in the new electricity markets. The requirement for regulatory rules will be evident throughout the dissertation, and will be discussed in detail in the final chapter. The study is concluded with the message that the common factors and resultant solutions are of such a nature that it would not be necessary to develop a new set of rules, regulations and management tools for a country starting down the road of deregulation. It would however be required to determine the needs of the industry's host country and to adapt the current tools and regulatory rules to the country it is implemented in. The final outcome of the dissertation is that the post-deregulated industry has only just started operating under the new regulatory regime and using the newly developed electricity markets. The industry is still subject to a severe learning curve, adapting and developing daily to satisfy the needs of a deregulated industry. There are sections of the industry that still need to be examined and optimised. However, the success of some of the deregulation efforts in the industry, and especially the deregulation in the UK confidently underwrite any equivalent exercise in the ESI