Electricity customers face doubled competition costs

Electricity customers are likely to have to pay more than twice as much as originally estimated to fund the introduction of domestic power competition next year, Professor Stephen Littlechild, the industry regulator, warned yesterday. However, Professor Littlechild dashed calls from 12 regional electricity companies (RECs) and two Scottish suppliers, to reclaim extra spending approaching pounds 1bn.

He also declined to rule out the possibility that the complex preparations could be delayed, though he said the aim was still to meet the current timetable. It would give 23 million households the ability to move electricity supplier on a rolling programme betwen April and September 1998.

The electricity watchdog, Offer, said the companies could be allowed to pass on total costs of between pounds 256m and pounds 383m over the five years from next April, compared with the previous estimate of pounds 154m made eight months ago. Professor Littlechild blamed the rise of extra management services. On top of this the Electricity Pool, the wholesale power market, is spending pounds 50m to update its computerised trading system.

The increased estimates means the cost per customer has risen from about pounds 1 a year for five years to between pounds 1.90 and pounds 2.90, out of an average bill of just under pounds 300. Charges in Scotland were likely to rise the most. Professor Littlechild insisted the savings from competiton would still outweigh these costs, even though electricity supply, the portion of the service which is being opened to competition, accounts for just 6 per cent of bills. Distribution, which remains a monopoly, covers 29 per cent of bills, with just over half going to cover generation costs.

Offer admitted the revisions represented a "substantial increase" but compared the figures with the pounds 850m the companies themselves had asked to pass on. It also attacked the huge differences in predicted cost between suppliers, with Northern Electricity asking for pounds 31m and Norweb requesting spending of pounds 118m. Professor Littlechild said some RECs had asked to pass through the cost of dealing with the millennium computer bug at the same time.

"We have weeded out other costs which don't need to be provided for. I would have been concerned at the variation in estimates if I had believed these were seriously thought through," Professor Littlechild said.

It also emerged that John Battle, the new Industry Minister, is unlikely to press for a full-scale review of the 1998 preparations, a move which would almost certainly mean a delay of several months. One REC, which would not be named, said Mr Battle was conducting a smaller scale investigation but would apparently stick to the current deadline for the timebeing. Mr Battle had previously indicated before the election that he did not want to see the timetable putting customer service at risk. Professor Littlechild also said yesterday Mr Battle was "not pushing to move competition back".

Asked whether he was contemplating a delay to the process in the face of vigorous lobbying from the RECs, Professor Littlechild added: "We are still assessing this and the situation is constantly changing. As of today that's the target we are aiming at. It would be wrong of me to insist on opening up the market where companies are not in a state where they can deliver. That would jeopardise customers."

The comments were interpreted by Yvonne Constance, from the Chairmans' Group of Electricity Consumer Committees, as a shift in his position towards the possibility of a delay. "It is a shift in position from the expectation that they will be ready to expressing a view that they may not. We are definitely pushing to keep the timetable on track.''

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