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Office of gas supply: Giving Customers a Choice – The Introduction of Competition into the Domestic Gas Market

Sir John Bourn, head of the National Audit Office, told Parliament today that the introduction of competition into the domestic gas market has benefited customers through lower prices, greater choice and better service. Some 20 million domestic customers currently spend around £6 billion a year on gas and so far over 4 million have switched to one of the 25 new suppliers. Since domestic competition began in April 1996, those customers who have switched have saved an average of £78 a year in real terms* on their gas bills compared to the prices in 1996. Customers who have remained with their existing supplier have also benefited from price reductions over the same period, saving an average of £48 a year, but there is scope for more customers to achieve further savings – £30 a year by changing supplier and, more generally, £20 a year by customers changing the way they pay for their gas. The benefits for customers already achieved by competition reflect well on OFGAS, the gas regulator, Transco and the rest of the gas industry.

*Savings based on an annual consumption of 19,050 kWh – a typical amount for a domestic consumer.

The National Audit Office found that:

Prices and bills

  • Since the introduction of competition began in April 1996, customers who have changed to a new supplier have seen a reduction in their bills averaging £78 a year in real terms. Customers who have stayed with British Gas Trading have seen a reduction averaging £48 a year in real terms.
  • These reductions total some £1 billion. And while they are partly the result of price controls imposed by OFGAS on Transco and British Gas Trading, competition has also been an important cause, especially for customers who have changed their supplier.
  • Many customers can save even more, by either:
    • changing supplier, for example saving around £30 a year for a British Gas Trading customer, based on the average of the prices of the other suppliers; or
    • changing the way they pay for their gas, for example saving £20 a year by changing from cash or cheque to monthly direct debit, based on the average prices of all gas suppliers.

Choice

  • Twenty six companies are now actively marketing to domestic customers and over four million customers have changed supplier. In a survey carried out by MORI for us and OFGAS, 95 per cent of customers told us that they were aware that competition had been introduced and 58 per cent considered themselves to be well informed about it.
  • However, while 30 per cent of customers in the survey said they found it easy to compare prices, 27 per cent said it was it difficult.
  • Few prices on offer from new suppliers to the 1.4 million customers using prepayment meters are much lower than British Gas Trading’s, suggesting that price competition to attract these customers is weak.
  • And a number of factors suggest that competition alone cannot yet be relied upon fully to protect customers.

Service

  • Customers generally consider it easy to change supplier. Even among customers who have not changed supplier, 72 per cent in our survey said that they thought it would be easy. Nonetheless, OFGAS and the Gas Consumers’ Council received 45,000 complaints about transfers in 1998; there has been concern at the time taken to implement customers’ requests to change supplier.
  • Take-up of special services that suppliers are required to make available to the elderly, the disabled and other special groups of customers is only nine per cent.
  • While most customers in our survey said the quality of service has not changed since competition was introduced, the majority of customers said they were satisfied with the service they received. Among those customers who say the quality of service has changed, more say it has improved than say it is worse.

The National Audit Office recommend that OFGAS should:

  1. Seek to improve customers’ knowledge of the impact on their gas bills of their choice of supplier and payment method.
  2. Consider how competition to supply customers using prepayment meters might be strengthened.
  3. Continue to keep the development of competition under careful review.
  4. Review the process by which customers are transferred to a new supplier to establish if this could be done more quickly.
  5. Establish why there is a low take up of the special services for the elderly and disabled and consider what action might be taken to increase take up.

Notes for Editors

  1. The survey of customers by MORI was carried out in August 1998 and involved interviews with a nationally representative sample of 2,511 domestic gas customers. Copies of MORI's survey report are available from the National Audit Office Library on 0171-798-7264.
  2. The Comptroller and Auditor General, Sir John Bourn, is the head of the National Audit Office employing some 750 staff. He and the NAO are totally independent of Government. He certifies the accounts of all Government departments and a wide range of other public sector bodies; and he has statutory authority to report to Parliament on the economy, efficiency and effectiveness with which departments and other bodies have used their resources.

PN: 38/99