Cauces

From 1990-98, small consumers remained captive to their local retailer, while large and medium (from 1994 onwards) consumers were able to choose supplier. It became clear in 1998 that the price reductions received by large consumers were largely at the expense of small consumers. The Regulator published data showing that retailers were systematically allocating their expensive wholesale power purchases to the captive market and their cheap power purchases to the competitive market. The impact of this segmentation of contracts was that small consumers were paying 30 per cent more for the generation element of their bill than large consumers.42 _{If generation cost had been}

equalised over all consumers, prices for small consumers would have come down by about 7.5 per cent.

The Regulator claimed that the introduction of competition for all consumers would prevent this exploitation because small consumers would switch to the cheapest supplier forcing companies to

41 _{The Commission shows Norway and Belgium as having annual switching rates greater than 15 per cent but} since only one region of Belgium is open for competition for small consumers, Belgium must be discounted. 42 _{Other elements of the electricity bill such as distribution and the retailer’s costs would, legitimately, be higher} for residential consumers than for large consumers, but the cost to generate a kWh is the same whether it is for a small consumer or an aluminium smelter.

offer competitive prices. However, it actually made the relative position of small consumers worse. The National Audit Office in an investigation into NETA found:43

‘Prices paid by industrial and commercial customers have fallen sharply since NETA was

implemented. Consumers who switch supplier can see substantial reductions. However, prices that domestic consumers pay for electricity have not fallen much since NETA was implemented, although they have fallen broadly in line with the trend in suppliers' overall costs since 1998. The prices that industrial and commercial consumers pay for electricity have fallen by 18 per cent since the start of NETA, and by 30 per cent since April 1998. Prices for domestic consumers have fallen little since the start of NETA but by 8-17 per cent since April 1998, reflecting the much higher costs of supplying domestic consumers which have been rising due to new environmental costs and the substantial costs of processing changes of supplier.’

Since retail prices are now unregulated, the suppliers charge what the market will bear, and clearly, residential consumers, for whom electricity is often only a small part of their expenditure and who have little confidence in their ability to play the market to their advantage, will bear higher prices than large consumers.

However, for about 15 per cent of the population, energy purchase is a major element of their expenditure. About 15 per cent of the UK population suffer fuel poverty, in other words, they spend more than 10 per cent of their disposable income on energy. Such consumers often have difficulty paying their bill and in the early 1990s, consumers that had difficulty paying their bill had little option but to pay by pre-payment meters (PPMs). About 15 per cent of the population pay for their power using PPMs. While electricity tariffs were regulated, the Regulator could control tariffs so that such consumers were not disadvantaged. However, competing retailers are unlikely to find such consumers attractive to compete for and, now tariffs are unregulated, retailers can charge a premium rate for PPMs.

Table 38. Energy prices for consumers in London (May 2005)

Direct Debit Standard

credit PPM gas PPM electricity PPM total

British Gas (Centrica) 587 640 402 267 669

London Electric EDF 586 628 381 272 653

Npower (RWE) 556 598 404 300 704

Powergen (E.ON) 565 (525) 586 381 260 641

Scottish Power 569 (500) 603 366 262 628

Scottish & Southern 588 621 398 264 662

Average 575 612 389 271 660

Source: http://www.energywatch.org.uk/help_and_advice/saving_money/ Notes

1. Assumes annual consumption of 3,300kWh of electricity and 20,500kWh of gas. 2. Dual fuel offers are not available for PPM consumers.

3. Figures in brackets are for internet only consumers. Internet terms are not available for standard credit or pre- payment meter consumers.

In May 2005, for consumers in London (assuming an average level of consumption), all six major suppliers offered their lowest prices for Direct Debit (DD) consumers - likely to be the richest consumers - buying a ‘dual-fuel’ package of gas and electricity (see Table 38). The best deals were only open to consumers who signed up through the internet. Standard credit consumers buying a dual fuel package (who pay quarterly in arrears) paid on average 6 per cent more than DD consumers, while PPM consumers paid on average about 15 per cent more than DD consumers and about 8 per cent more than standard credit consumers. In the worst case, NPower (RWE) charged PPM consumers

43 _{National Audit Office (2003) ‘The New Electricity Trading Arrangements in England and Wales’ Report by} the Comptroller and Auditor General HC 624 Session 2002-2003: 9 May 2003

25 per cent more than it charged DD consumers. There is no evidence that these higher charges reflect higher costs.

If we look at the picture nationally (See Table 39), focusing on dual fuel offers paying by Direct Debit, it is clear that the incumbents for gas and electricity, British Gas and the local electricity company, are invariably expensive suppliers. Scottish & Southern and British Gas were expensive in all regions in May 2005, but the other four major suppliers are all cheapest supplier in at least three regions. Internet offers (only available for Direct Debit consumers) are invariably about 10 per cent cheaper than the next cheapest offer, again reinforcing the impression that the companies are targeting the richer consumers. Scottish Power acknowledged this policy when it announced it would be targeting ‘profitable’ customers.44

Table 39. Dual fuel offers in Britain (May 2005)

Region Cheapest Internet Most expensive British Gas Incumbent

London (EDF) 556 (RWE) 500 (SP) 588 (SSE) 587 586

Seeboard (EDF) 551 (RWE/E.ON) 500 (SP) 582 (SSE) 581 579

SWEB (EDF) 579 (RWE) 528 (SP) 606 (BGT) 606 604

Scottish Power (SP) 589 (E.ON) 536 (E.ON) 613 (SSE) 604 601

Manweb (SP) 550 (EDF) 505 (SP) 580 (BGT) 580 558

North Scotland

(SSE) 583 (E.ON) 524 (SP) 620 (SSE) 596 620

Southern (SSE) 558 (SP) 515 (SP) 611 (SSE) 590 611

SWALEC (SSE) 591 (SP) 542 (SP) 636 (SSE) 626 636

NORWEB (E.ON) 550 (EDF) 509 (SP) 580 (BGT) 580 563

E Midlands (E.ON) 544 (RWE) 499 (SP) 573 (BGT) 573 566

Eastern (E.ON) 543 (RWE) 496 (SP) 573 (BGT) 573 555

Midlands (RWE) 559 (SP) 506 (SP) 583 (SSE) 580 573

Yorkshire (RWE) 554 (EDF) 504 (SP) 583 (BGT) 583 570

Northern (RWE) 553 (EDF) 504 (SP) 594 (SSE) 588 584

Average 561 512 594 589 586

Source: http://www.energywatch.org.uk/help_and_advice/saving_money/ Notes

1. Assumes annual consumption of 3,300kWh of electricity and 20,500kWh of gas. 2. All offers are dual fuel offers paying by Direct Debit.

3. SP = Scottish Power, SSE = Scottish & Southern Energy, BGT = British Gas Trading/Centrica. 4. The ‘incumbent’ is the previous home electricity supplier.