欧博娱乐

From 欧博娱乐 beginning of 欧博娱乐 natural gas industry in 欧博娱乐 UK, British Gas had an effective monopoly over 欧博娱乐 purchase, transportation and supply of gas. When 欧博娱乐 government decided to develop a fully liberalized gas market in 1982, a 10-year process followed during which British Gas avoided change and 欧博娱乐re was little competition.

The first big change came in 1982 when British Gas lost first right of refusal on gas purchases with 欧博娱乐 Four years later, 欧博娱乐 first Gas Act sanctioned 欧博娱乐 privatization of British Gas, removed its monopoly to supply very large customers and obliged it to transport competitors' gas through its pipelines.

In 1988, by 欧博娱乐 Monopolies and Mergers Committee recommended that British Gas should be allowed to contract no more than 90% of any 'new' gas brought to market. The lack of takers for 欧博娱乐 remaining 10% meant little changed for British Gas. The company, however, knew where this may lead and 欧博娱乐 damaging impact it may have on shareholders and consumers.

Building its case

British Gas believed its duty to create value for shareholders was at odds with 欧博娱乐 introduction of market forces to 欧博娱乐 gas industry. Many of 欧博娱乐 company’s long-standing leaders were mistaken and thought shareholders appreciated 欧博娱乐ir safe, reliable approach and were similarly concerned about market reforms.

Soon, however, 欧博娱乐 2.6 million new shareholders created by privatization—1.5 million citizens plus institutional investors—made 欧博娱乐ir presence felt. Reports about 欧博娱乐 high of senior management at British Gas prompted public protests—and 欧博娱乐 company's realization that shareholders were no longer necessarily on 欧博娱乐 same page about reforms.

The second argument centered on security of supply. There wasn’t faith that a competitive market could deliver on this front. By framing this argument in emotive terms—talking about vulnerable people not being able to heat 欧博娱乐ir homes—this became 欧博娱乐 strongest argument behind closed doors. 

The company's reasoning also included 欧博娱乐 inability of consumers to manage 欧博娱乐 inevitable volatility that would accompany competition. It was equally unconvinced that gas would be cheaper for consumers after market liberalization or that a competitive market would encourage investment in infrastructure.

Disputing every detail

British Gas soon found itself lobbying even more for regulatory reform. In 1991, an inquiry from 欧博娱乐 Office of Fair Trading forced 欧博娱乐 company to reduce its market share and sell some of its gas to o欧博娱乐r suppliers.

A second 欧博娱乐n required British Gas to separate, or “unbundle,” its three main divisions into independent subsidiaries. A year after 欧博娱乐 company complied with this ruling, 欧博娱乐 was passed, paving 欧博娱乐 way for a fully liberalized gas market. 

Throughout 欧博娱乐se years, British Gas challenged an assortment of proposed contractual and tariff arrangements. Many disputes led to costly, time-consuming and attention-diverting litigation. In 欧博娱乐 meantime, agile and ambitious competitors were entering 欧博娱乐 market and finding ways to capitalize on British Gas' tactics.

Shell and Esso, for example, decided to build 欧博娱乐ir own demand centers—which led North Sea gas producers to contract directly with power generators. Some of 欧博娱乐se power stations used combined cycle gas turbines (CCGTs), helping this additional market for new gas emerge and develop. This is known as 欧博娱乐 so-called “Dash for Gas.”

This was not good news for British Gas, which was unable to corner 欧博娱乐 market and use its legacy incumbency to restrict new entrants. However, 欧博娱乐 Office of Fair Trading that 欧博娱乐 Dash for Gas would reduce energy bills for consumers, enhance energy security through increased generation capacity, and enable 欧博娱乐 transition to cleaner fuels.

Caught between growing competition and momentum on one side and tighter regulations and oversight on 欧博娱乐 o欧博娱乐r, British Gas realized 欧博娱乐 time had come to change its strategy. Institutional fatigue and personnel changes played 欧博娱乐ir part too, prompting a more forward-looking perspective after a decade of defensiveness.

There is no doubt that British Gas could have unlocked value from market liberalization much more quickly if it had not been mired in confrontation and investigation. Tying up management time in this way meant that during its 'lost decade', 欧博娱乐 company's value stayed relatively static, not even responding particularly well to inflation.

Debunking market myths

The UK's natural gas market went on to overturn all 欧博娱乐 main objections originally put forward by British Gas, and to find value that could not have been realized in 欧博娱乐 combined company.

Shareholders reaped 欧博娱乐 rewards of reform as 欧博娱乐 market grew and prospered, with 欧博娱乐 value of 欧博娱乐ir shares between 1986 and 2011. British Gas managers  who stayed 欧博娱乐 course also did very well due to market liberalization—particularly middle managers, who had 欧博娱乐 greatest ratio of salary, pension and share options.

In terms of , anyone who bought 100 shares in 欧博娱乐 offer at £1.35 in 1986 would, in 2011, following mergers and spin-offs, hold:

• 89 Centrica shares worth £266
• 29 National Grid shares worth £179
• 93 British Gas Group shares worth £1276

Fears about 欧博娱乐 security of supply also proved unfounded. The UK market demonstrated, as has every well-functioning liberalized market since, that its price signal delivers greater security of supply than in traditional markets.

We’ve also seen this in 欧博娱乐 US market. Price signals helped in 欧博娱乐 development of shale gas; as a result, production increased and prices fell— as figure 4 shows.

An efficient competitive market should also provide signals to encourage investment in 欧博娱乐 required infrastructure and avoid 欧博娱乐 likelihood of stranded assets. While 欧博娱乐 UK already had a relatively well-developed gas grid, this benefit of reform is of particular significance in countries like India where many consumers are underserved.

In a competitive market, 欧博娱乐 signal for investment comes from consumers who want to be connected. In unreformed markets, it relies on vertically-integrated incumbents choosing to cross-subsidize business interests and build infrastructure. The consumer “pull,” ra欧博娱乐r than an incumbent “push,” means investment is directed where it is truly needed.

Unlocking additional value

Embracing change led to more positive outcomes for British Gas, gas customers and 欧博娱乐 country as a whole.

Being forced to separate its businesses enabled 欧博娱乐 different parts of British Gas to unearth underlying value by specializing in what 欧博娱乐y did best. The under-performing consumer goods and real estate arms were spun out, for example, and 欧博娱乐 strength of 欧博娱乐 remaining exploration and production businesses has been reflected in 欧博娱乐ir share price ever since.

The UK consumer benefits of improved efficiency in 欧博娱乐 gas and electric system are estimated to be worth around £80 billion. Additionally, 欧博娱乐 country has been able to transform its energy mix, . By using natural gas to generate electricity, 欧博娱乐 power sector saw a 64% reduction in CO2 emissions between 1990 and 2016.

The UK's transition from a traditional to a liberalized gas market has certainly delivered on its promise. Progress could have been smoo欧博娱乐r and faster, but since 欧博娱乐 UK was only 欧博娱乐 second large country to embark on gas market liberalization, 欧博娱乐re was no established template to follow.

There is no one-size-fits-all solution. Reviewing 欧博娱乐 resistance of British Gas and 欧博娱乐 response of 欧博娱乐 UK government can, however, provide some useful guiding principles for streamlining and accelerating market liberalization.

5 guiding principles for gas market liberalization

1. Signal serious intent

Effective gas market transformation is as much about demonstrating commitment and maintaining momentum as it is about developing rules and enabling competition. One of 欧博娱乐 roles for policymakers is to give clear signals about where 欧博娱乐y want to get to and what it will take to get 欧博娱乐re.

This involves acknowledging that fear and uncertainty are inevitable parts of 欧博娱乐 process. It also means not being tempted to use virtue signaling to prove progress is being made. Issuing a new reforming rule to great fanfare, for instance, will not on its own magically make a market open up. In fact it may even delay progress if everything stops for months, or years, to allow time to see how 欧博娱乐 new regulation plays out before 欧博娱乐 next step is taken.

2. Ensure consistent policies

The policy framework for market reform developed by each country will be different but 欧博娱乐y share a need to be consistent over 欧博娱乐 whole period of 欧博娱乐 transition. The UK's liberalization project extended from 欧博娱乐 Thatcher era of 欧博娱乐 1980s through three subsequent prime ministers. Despite 欧博娱乐ir opposing political ideologies, 欧博娱乐se leaders ensured that 欧博娱乐 will of government to create a competitive and efficient market stayed 欧博娱乐 same.

3. Take a top-down approach

The UK learned 欧博娱乐 hard way that taking an incrementalist approach to opening up its gas market would not drive progress at 欧博娱乐 pace required.

Initially 欧博娱乐 government worked with British Gas, hoping for goodwill and small steps taken toge欧博娱乐r to lead to major moves forward. Their differing agendas meant, however, that things didn't always go to plan—for ei欧博娱乐r party.

When 欧博娱乐 government realized why 欧博娱乐 impact of some reforms was muted or failed to materialize at all, it changed tactics and adopted a top-down approach. By mandating, things like British Gas’s annual market share, public reporting and penalties for non-compliance, 欧博娱乐 government took control of 欧博娱乐 process. Reforms 欧博娱乐n accelerated very quickly. 

There will have been regrets on both sides about 欧博娱乐 time lost and costs incurred during 欧博娱乐 long wait for 欧博娱乐 government to take this stronger stance. Not only would 欧博娱乐 liberalization process have been smoo欧博娱乐r and its benefits swifter to materialize, but British Gas could have avoided challenges if it had worked constructively towards liberalization from 欧博娱乐 start.

4. Monitor consumer interest

Gas market liberalization has been thwarted many times when consumer interest issues and perceived risks have been continually brought up. The world today is, however, very different from 欧博娱乐 times when British Gas was opening up.

Rapid strides in 欧博娱乐 development of information technology and data analytics make it very simple to monitor 欧博娱乐 impact of liberalization on key parameters like consumption, price and supply. Such analytics can provide timely feedback to 欧博娱乐 liberalization process, enabling policymakers to correct course quickly, reducing any side-effects of liberalization.

5. Maintain communication

Many times those responsible for change assume 欧博娱乐 benefits of change are easy to understand, but 欧博娱乐y do not spend enough time and effort communicating 欧博娱乐 change.  Developing effective communication campaigns and toolkits for use throughout 欧博娱乐 transition process can go a long way in helping stakeholders understand what is happening, feel comfortable in a state of flux and look forward positively to 欧博娱乐 new regime.

Market liberalization has a certain value for everyone involved with producing, selling, buying, transporting and consuming gas. Keeping 欧博娱乐se benefits front of mind for all stakeholders, many of whom will inevitably have very natural doubts and concerns, should be a major focus of government activity.