Business and industry

Office of Gas and Electricity Markets: Giving Domestic Customers a Choice of Electricity Supplier

Sir John Bourn, head of the National Audit Office, told Parliament today that since electricity supply competition began in September 1998 more than 6.5 million customers – one in four – have saved money by changing supplier. Domestic electricity customers as a whole have seen their electricity bills fall by some £750 million a year since [...]

Report cover showing a piggy bank plugged into an electric socket

Sir John Bourn, head of the National Audit Office, told Parliament today that since electricity supply competition began in September 1998 more than 6.5 million customers – one in four – have saved money by changing supplier. Domestic electricity customers as a whole have seen their electricity bills fall by some £750 million a year since competition began – of which some £140 million is on account of competition and the rest is due to regulatory price controls. Customers who have not so far changed supplier could between them reduce their bills by a further £700 million a year, or 13 per cent, if they did.

Ofgem phased in competition for domestic customers between September 1998 and May 1999 and have agreed that companies should be able to recover some £850 million from customers to meet the additional costs they incurred in preparing their systems for competition. Costs are being recovered through customer’s electricity bills over five to seven years.

The National Audit Office examined the impact of electricity competition on domestic customers and found that:

  • By June 2000 the 6.5 million customers who had changed supplier were saving some £45 a year on average (15 per cent) since competition began. Although price controls have saved customers who have not switched supplier some £23 per year on average (8 per cent), most of these customers (of whom there were 19 million in June 2000) have yet to obtain significant financial benefits from competition. Ofgem believe that competition will deliver further savings in future because electricity companies have an incentive to drive down ‘wholesale’ electricity prices to gain a competitive advantage by passing those savings on to customers – something that the New Electricity Trading Arrangements scheduled to be introduced in March 2001 should facilitate.
  • Some 30 per cent of customers with household incomes above £25,000 a year have switched supplier compared with less than 20 per cent of those with incomes of less than £9,500 a year. This is partly because a higher than average proportion of poorer households use a prepayment meter to pay for their electricity. Such customers cost more to serve, and few companies offer tariffs that enable such customers to save by changing supplier.
  • For most people switching supplier is trouble free. But some 18,800 customers have complained about the switching process since the start of competition (for example, about delays), fewer than after the gas market opened. Complaints about doorstep selling have been at a level similar to the first year of domestic gas competition, around one complaint per thousand switchers. There were 7,900 complaints in the year to July 2000 from customers who had changed electricity supplier about ongoing service, such as inaccurate or delayed bills. This is some six times the level of complaints from those who had not changed their supplier.

To benefit fully from electricity competition, customers should review whether their current electricity supplier best meets their needs, taking into account prices, quality of service and the scope for deals that can provide a range of services, especially gas, from a single supplier.

Ofgem are taking a range of actions to protect the public and help them benefit from electricity competition, and the National Audit Office highlight the following priorities for Ofgem in taking these forward:

  • Make it easier for domestic customers to identify the best deal, by improving customers’ awareness of how to benefit from competition, and making it easier to compare prices and levels of service.
  • Act to reduce the problems customers experience when they change suppliers. These problems include misleading price information from sales agents and transfer delays.
  • Continue to work with the industry to reduce the costs borne by prepayment meter customers, for example by supporting the development of cheaper prepayment metering technology.
  • Minimise the barriers to entry to the electricity supply market, which would includepaying particular attention to the impact of wholesale market reforms planned for early this year, and pressing ahead with their plans to restructure the electricity industry in Scotland, where rates of customer switching are lower than elsewhere.

energywatch (the new Gas and Electricity Consumers Council) established in November 2000 has a key educational rôle to play in raising consumer awareness of the competitive electricity market and monitoring the performance of companies. The National Audit Office recommend that it accords priority to improving customer awareness of electricity competition and how to make an informed choice, and to developing clear and consistent processes for monitoring and reviewing the performance of electricity companies.

Sir John commented:

“Introducing competition into the domestic electricity market has been a major achievement for Ofgem and the industry, and it is good news that many customers are saving money as a result. There is scope for the benefits to be spread wider and there is an important role for Ofgem and energywatch in improving the information available to customers, maintaining consumer confidence in the market and helping to ensure companies can compete on equal terms.”


Publication details:

ISBN: 0102764018 [Buy from TSO]

HC: 85 2000-2001

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