Electricity bills to fall 10% after watchdog clampdown

HOUSEHOLD ELECTRICITY bills are to be cut by around 10 per cent next year, an annual saving of almost pounds 30, the industry regulator is expected to announce later this week.

Callum McCarthy, the head of Ofgem, is set to order the electricity companies to reduce their distribution charges by 25 to 30 per cent from next April.

Distribution charges - the amount levied to maintain the local network of wires in each regional electricity company - make up a third of the average domestic bill of pounds 275.

The good news for UK householders comes just two weeks after the water regulator ordered water companies to cut bills by 14 per cent. The cut is equivalent to pounds 34 off the average domestic water bill.

The steep one-off reduction in electricity charges will be followed in the subsequent four years by price controls requiring companies to keep increases in bills below the level of inflation.

In some cases, for the most efficient suppliers, the one-off reduction is likely to be less than 20 per cent. But industry sources fear that some companies could be penalised with reductions next year closer to 40 per cent.

Mr McCarthy said earlier this year that he planned to implement a "further significant cut in distribution costs" when he announced the results of his price review.

Britain's 14 public electricity suppliers will have until November to try to persuade Mr McCarthy to soften his price cuts. They have the option of appealing to the Competition Commission if he refuses to budge.

The last time distribution price controls were set in 1995, the then regulator, Stephen Littlechild, had to tear up the formula and impose tougher price curbs within a matter of months after discovering that he had been hoodwinked by the industry over the level of savings possible.

His successor is determined not to fall into the same trap, making a harsh set of price cuts inevitable. Mr McCarthy estimates that operating costs for the electricity companies fell by a quarter in real terms between 1995 and 1998 alone. He will be looking for some of these efficiency gains to be passed onto customers.

Industry observers said the regulator may allow electricity companies to merge to help them achieve the demanding efficiency targets.

There has already been some consolidation in electricity supply with London Electricity taking over the supply business of Hyder in South Wales. A number of other Recs, including Norweb and Midlands, are keen to merge with other supply businesses.

There is yet to be a merger between two distribution businesses. But industry observers believe the most obvious candidate would be a merger between Sweb in the South West and Swalec in South Wales with Midlands possibly joining in as a third partner.

Sweb and Swalec cover two of the most thinly populated areas of the country and would have a lot to gain by merging their distribution businesses, say analysts. Mr McCarthy also hopes to introduce some form of "rolling regulation" into the forthcoming five-year price review so that companies have additional incentive mechanisms to improve efficiency further.

The price cuts stemming from the distribution review are in addition to the estimated 13 per cent reduction in bills which Ofgem estimates will result from the overhaul of the electricity pool and the introduction of new trading arrangements.

This should take effect next year, provided there is parliamentary time for the necessary legislation.

Start your day with The Independent, sign up for daily news emails
News
i100 In this video, the late actor Leonard Nimoy explains how he decided to use the gesture for his character
Arts and Entertainment
Secrets of JK Rowling's Harry Potter workings have been revealed in a new bibliography
arts + ents
News
Down-to-earth: Winstone isn't one for considering his 'legacy'
people
News
news
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: HR Benefits Manager

£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

Recruitment Genius: Office Manager / Financial Services

£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

Jemma Gent: Year End Accountant

£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

Jemma Gent: Management Accountant

£230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...

Day In a Page

HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?
How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

Time to play God

Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

MacGyver returns, but with a difference

Handyman hero of classic 1980s TV series to be recast as a woman
Tunnel renaissance: Why cities are hiding roads down in the ground

Tunnel renaissance

Why cities are hiding roads underground
'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

Boys to men

The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
Crufts 2015: Should foreign dogs be allowed to compete?

Crufts 2015

Should foreign dogs be allowed to compete?
10 best projectors

How to make your home cinema more cinematic: 10 best projectors

Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

Manchester City vs Barcelona player ratings

Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

Monaco: the making of Wenger

Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

Chris Gayle: The West Indies' enigma

Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
In Ukraine a dark world of hybrid warfare and murky loyalties prevails

In Ukraine a dark world of hybrid warfare

This war in the shadows has been going on since the fall of Mr Yanukovych
'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

Homage or plagiarism?

'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
Broadchurch ends as damp squib not even David Tennant can revive

A damp squib not even David Tennant can revive

Broadchurch, Series 2 finale, review
A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

Inside the mansion of Germany's 'Bishop of Bling'

A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower