Homes plug in for power competition

News Analysis: Domestic electricity consumers will be able to shop around for a supplier from today

FROM TODAY you can if you live in Norwich but not if you live in Northampton. You can also do it in Chester but not in Chesterfield, and in Motherwell but not in Manchester. In Hull they will say yes but in Hartlepool the answer, for a little while longer, remains no.

This morning, Britain's domestic electricity market opens up to competition with 750,000 households in four regions of the country free to switch supplier for the first time.

It will be a slow start with only 10,000 customers expected to desert their local supplier, tempted by price reductions averaging 10 per cent.

But by Christmas, competition will be established in every area of the country and by next June the process will be complete. All of Britain's 26 million domestic and small business electricity consumers will be able to shop around for a supplier of their choice.

It has been an exercise of unparalleled size, complexity and cost, dwarfing even the logistical nightmare of liberalising the gas market. The 12 regional electricity companies in England and Wales, the two Scottish suppliers and the Electricity Pool have spent well over pounds 1bn preparing for today.

Even with eight years' notice of the impending liberalisation, the industry still contrived to miss its original deadline by six months and as a result has incurred fines of pounds 50m.

The great unknown is whether it has been worth the wait. There are three question- marks hanging over the exercise.

First, will the computer systems stand the strain? Second, will the industry avoid the marketing chaos that followed the opening of the gas market?

And third, and most crucially, will it prove a damp squib? Will customers embrace the new era of competition with gusto or will they vote with their feet and stay with the supplier they know, if not love, through the sheer power of inertia?

The energy minister John Battle, the electricity regulator Professor Stephen Littlechild, and the industry itself are as confident as they can be that the transition to a competitive market will go smoothly. It is one reason why the start date was put back six months while armies of software consultants crawled over the computer systems in supply companies the length and breadth of the country, checking, testing and retesting.

John Roberts, President of the Electricity Association and chief executive of SWALEC, says that one important measure of the programme's success will be to demonstrate that it actually works.

"We have tested exhaustively and, though it would be wrong to say there won't be any mistakes, human nature being what it is, those mistakes will be kept to the absolute minimum and rectified as quickly as possible," he said.

Others within the industry are not so sanguine. One electricity executive said: "We have calculated that to change a customer from one supplier to another requires seventeen separate administrative tasks. That leaves vast scope for cock-ups along the way."

The early days of gas liberalisation saw householders plagued either with the wrong bills, or legions of doorstep salesmen preying on vulnerable customers such as the elderly. The electricity suppliers, many of whom were involved in that debacle, believe they have learnt from bitter experience.

The Association of Energy Suppliers, a body to which all the leading electricity and gas firms belong, has drawn up a code of practice on marketing.

Derek Baggs, the administrator of the code, says: "Some regrettable instances of bad practice by some doorstep salespersons have drawn the attention of the media, but in a market now covering 19 million gas customers there have in fact been fewer than 2,000 complaints about marketing activity."

The code bars suppliers from calling late at night or early in the morning, trying to sell to anyone under-age and persisting when it is plain the householder is not interested. It also requires doorstep sellers to provide proper like-for-like comparisons of how their prices compare with those of the existing supplier.

A number of companies, such as Midlands Electricity, have got rid of outside contractors and now employ their doorstep sales teams direct.

Roger Murray, Midlands' managing director of energy services, says that over the next six months it is trebling the size of its doorstep selling team to 600 - of whom 400 will be dedicated to defending its local franchise and 200 to capturing new customers from other suppliers.

Mr Murray says Midlands' worst case scenario would be a net loss of 10 per cent of its customer base over five years. But he adds: "We would be mortified if the loss was anywhere near that figure."

Whether competition works and how many customers switch will depend, crucially, on how far bills fall. Margins are low in electricity supply and swapping suppliers is expected to yield savings of about 10 per cent on the average domestic bill of pounds 254 a year.

Based on this, Swalec's Mr Roberts believes that about 10 per cent of households will change supplier compared with a figure of 27 per cent in the gas market.

"Competition between the suppliers won't be anything other than real but the numbers switching will be lower because of inertia and the level of savings available," he says.

This is a view disputed by Centrica, which trades as British Gas and is one of only two non-electricity companies to have applied for a supply licence.

Centrica has already signed up 440,000 customers, has expressions of interest from a further 1.5 million and has set its sights on capturing 15-20 per cent of the market, which would give it well over four million new customers.

"If 30 per cent of gas customers have switched, then why shouldn't the same apply with electricity?" asks Centrica's chief executive Roy Gardner.

Electricity executives say this will not happen because the savings will be much lower. Mr Gardner disputes this arguing that the savings will be virtually identical, making Centrica's "dual fuel" offer every bit as attractive as those of the electricity companies.

As ever, there is a lot of hype and propaganda surrounding the exercise. Although Centrica has signed 440,000 customers, only 15,000-20,000 will switch on day one.

Likewise Eastern, one of the regions in the first wave of liberalisation, has signed 200,000 customers outside its area. But only a fraction of those will go live today since only three other areas of the country - Manweb, Yorkshire and Scottish Power - are now open to limited competition.

John Geoghegan, director of utilities at the consultancy and IT services group Cap Gemini, is sceptical about the whole exercise arguing that the industry's outdated cost structure will weaken competition, keeping prices artificially high and service levels low.

He says it costs pounds 40 to acquire each new customer but since they yield a net profit of only pounds 3-pounds 5 a year it could take 13 years to achieve a payback. "What is needed is a reduction in energy costs via a more competitive generation market, further consolidation of the supply industry to reduce overheads and marketing costs and a streamlining of customer service costs.

Many in the industry would say amen to all that and indeed the Government and regulators are making moves in those directions.

But whether they will come rapidly enough to justify all the expense and angst that has gone into delivering competition in electricity is anyone's guess.

Suggested Topics
PROMOTED VIDEO
Life and Style
Sainsbury's could roll the lorries out across its whole fleet if they are successful
tech
Arts and Entertainment
tv
Sport
Ojo Onaolapo celebrates winning the bronze medal
commonwealth games
Arts and Entertainment
Rock band Led Zeppelin in the early 1970s
musicLed Zeppelin to release alternative Stairway To Heaven after 43 years
Arts and Entertainment
High-flyer: Chris Pratt in 'Guardians of the Galaxy'
filmHe was homeless in Hawaii when he got his big break. Now the comic actor Chris Pratt is Hollywood's new favourite action star
Arts and Entertainment
'Old Fashioned' will be a different kind of love story to '50 Shades'
film
Life and Style
fashionHealth concerns and 'pornified' perceptions have made women more conscious at the beach
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Arts and Entertainment
Tracey Emin's 'My Bed' is returning to the Tate more than 15 years after it first caused shockwaves at the gallery
artTracey Emin's bed returns to the Tate after record sale
Arts and Entertainment
Smart mover: Peter Bazalgette
filmHow live cinema screenings can boost arts audiences
Environment
Neil Young performing at Hyde Park, London, earlier this month
environment
News
i100
News
Prince Harry is clearing enjoying the Commonwealth Games judging by this photo
people(a real one this time)
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

Project Manager (HR)- Bristol - Upto £400 p/day

£350 - £400 per annum + competitive: Orgtel: Project Manager (specializing in ...

Graduate / Trainee Recruitment Consultant - IT

£25000 per annum + OTE £40,000: SThree: Orgtel are seeking Graduate Trainee Re...

HR Business Partner - Banking Finance - Brentwood - £45K

£45000 per annum + Benefits: Ashdown Group: ** HR Business Partner - Senior H...

PA / Team Secretary - Wimbledon

£28000 - £32000 per annum + Benefits: Ashdown Group: PA / Team Secretary - Mat...

Day In a Page

Save the tiger: The animals bred for bones on China’s tiger farms

The animals bred for bones on China’s tiger farms

The big cats kept in captivity to perform for paying audiences and then, when dead, their bodies used to fortify wine
A former custard factory, a Midlands bog and a Leeds cemetery all included in top 50 hidden spots in the UK

A former custard factory, a Midlands bog and a Leeds cemetery

Introducing the top 50 hidden spots in Britain
Ebola epidemic: Plagued by fear

Ebola epidemic: Plagued by fear

How a disease that has claimed fewer than 2,000 victims in its history has earned a place in the darkest corner of the public's imagination
Chris Pratt: From 'Parks and Recreation' to 'Guardians of the Galaxy'

From 'Parks and Recreation' to 'Guardians of the Galaxy'

He was homeless in Hawaii when he got his big break. Now the comic actor Chris Pratt is Hollywood's new favourite action star
How live cinema screenings can boost arts audiences

How live cinema screenings can boost arts audiences

Broadcasting plays and exhibitions to cinemas is a sure-fire box office smash
Shipping container hotels: Pop-up hotels filling a niche

Pop-up hotels filling a niche

Spending the night in a shipping container doesn't sound appealing, but these mobile crash pads are popping up at the summer's biggest events
Native American headdresses are not fashion accessories

Feather dust-up

A Canadian festival has banned Native American headwear. Haven't we been here before?
Boris Johnson's war on diesel

Boris Johnson's war on diesel

11m cars here run on diesel. It's seen as a greener alternative to unleaded petrol. So why is London's mayor on a crusade against the black pump?
5 best waterproof cameras

Splash and flash: 5 best waterproof cameras

Don't let water stop you taking snaps with one of these machines that will take you from the sand to meters deep
Louis van Gaal interview: Manchester United manager discusses tactics and rebuilding after the David Moyes era

Louis van Gaal interview

Manchester United manager discusses tactics and rebuilding after the David Moyes era
The children were playing in the street with toy guns. The air strikes were tragically real

The air strikes were tragically real

The children were playing in the street with toy guns
Boozy, ignorant, intolerant, but very polite – The British, as others see us

Britain as others see us

Boozy, ignorant, intolerant, but very polite
Countries that don’t survey their tigers risk losing them altogether

Countries that don’t survey their tigers risk losing them

Jonathon Porritt sounds the alarm
How did our legends really begin?

How did our legends really begin?

Applying the theory of evolution to the world's many mythologies
Watch out: Lambrusco is back on the menu

Lambrusco is back on the menu

Naff Seventies corner-shop staple is this year's Aperol Spritz