Electricity firms `may have to delay competition'

The electricity industry regulator may have to consider delaying the launch of domestic competition, planned to start in April 1998, rather than developing special contingency plans, according to a leaked report commissioned by his department, Offer.

The document, submitted last month by PA Consulting Group, Offer's programme manager for competition, also warns that the two preferred contingency arrangements may be so time-consuming and complicated that they may fail to work on time.

The latest disclosure about domestic competition follows comments last week by Professor Stephen Littlechild, the regulator, arguing that the complex process of transferring customers to alternative suppliers might have to be done manually if newly developed computer programs break down. Offer's plan envisages a rolling programme extending competition to 20 million homes between April and September next year.

PA Consulting was asked by Offer to come up with contingency plans after growing doubts about whether the industry would meet this timetable. Its report, which has been seen by The Independent, warns: "Delaying the launch of the competitive electricity supply market is a possible option for all scenarios. Before contingencies are invoked, the relative benefits of contingency versus delaying the launch could be considered." It goes on to outline various possible contingency arrangements which would give customers the ability to move supplier even though the systems to manage the process had not been fully developed.

The report says Offer will have to decide which plan to adopt by May, with a final decision on whether to implement the temporary arrangements due in September.

The first option involves new suppliers signing temporary bilateral agreements with the regional electricity companies (RECs), a solution apparently favoured by Professor Littlechild. Existing bills would be sent out by the RECs in the usual way, except that they would go to the new supply companies rather than direct to households. However, the PA report says these new contracts would have to be kept simple and concludes: "The major concern is that resolving [this] will take too long and the solution will become over complex."

The alternative contingency plan envisages developing temporary trading arrangements between suppliers and the Electricity Pool, the body which manages the wholesale power market. The PA document also doubts whether this would work. "This option may require changes to the Pool commercial arrangements, including the Operational Framework. Obtaining Pool members' agreement to such changes may prove extremely time consuming, if not impossible, to achieve."

Professor Littlechild insisted last week that competition could be made to work on time without the need for such fallback arrangements. However, management consultants advising the RECs have suggested that at least one-third of the 14 companies involved - 12 in England and Wales plus two in Scotland - are unlikely to have their computer systems ready in time. The fear inside the industry is that the contingency plans may be just as difficult to sort out.

The warnings of PA Consulting have been echoed by Andrew Claxton, chief executive of the Pool, which is spending pounds 50m preparing for competition. He told a recent industry conference that the contingency plans could be so unattractive that they would put off new suppliers from entering the market. Outlining the severe shortage of trained consultants to manage the computer problems, he said developing temporary fallback plans "implies a diversion of resources that can further compound the initial scarcity".

A spokeswoman for Offer declined to comment on the report yesterday.

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