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Press release


  • 6 September 2004
  • Electricity competition is bad for your pocket


    Many electricity consumers are worse off following the introduction of electricity retail competition in England and Wales, new research from the Science and Technology Policy Research Unit at the University of Sussex concludes.

    Dr Dominic Maclaine has compared how domestic electricity consumers fared during the first four years of competition (1998-2002) with how they might have done had competition been introduced in a different way or not at all. In the three other hypothetical scenarios, consumers would have been better off - in one case to the tune of more than £1billion.

    "The classic economic model assumes competition brings lower costs and processes than a regulated monopoly," says Dr Maclaine. "Clearly, this has not been the case for electricity retail in England and Wales where the costs of introducing competition have far outweighed the benefits for many consumers."

    Dr Maclaine's research shows that electricity pre-payment customers, usually some of the poorest customers, have done particularly badly. If competition had not been introduced at all but instead the price of electricity had been set by the regulator Ofgem then pre-payment consumers, as a group, could have been nearly £300m better off. However, in the first four years of retail competition this group of consumers have seen little of the benefits from competition he concludes.

     "Pre-payment customers have been particularly badly hit by the technological route chosen to introduce competition," says Dr Maclaine. "For many customers much has been done to make it easier for them to switch supplier. However, the situation is much more complicated for pre-payment customers, many of whom did not switch in the first years of competition."

    Although many other types of customers have switched supplier Dr Maclaine explains that this is unsurprising since they were given a regulatory incentive to do so. He points out that if the energy regulator Ofgem had been tougher on companies more customers would have been better off.

    He also argues that the high level of switching has brought its own problems since it has led to an increase in troubleshooting costs, such as mis-selling, customer transfer problems, billing issues, etc since 1998. Together with other transaction and capital costs, Dr Maclaine estimates that the total costs of introducing competition have totalled more than £1.6billion while the net benefits have been no more than £650m.

     "Incredibly, the problems have yet to be sorted out," says Dr Maclaine, "which will mean that customers have still more to pay for introducing competition six years ago." 

     

    Notes for editors 

    Dr Dominic Maclaine can be contacted on 07884 318617 or via e-mail on dominic.maclaine@btconnect.com

    University of Sussex press office contacts: Jacqui Bealing, J.A.Bealing@sussex.ac.uk, or Maggie Clune, M.T.Clune@sussex.ac.uk.  Tel: 01273 678888

     

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