Power to the consumer as grids are opened up

Householders may soon be able to shop around for electricity. Peter Rodgers reports

IMAGINE a future when your daily delivery of junk mail is full of tempting offers from electricity suppliers. No longer are you lumbered with buying power from your particular regional electricity company (REC). Instead you can shop around, wherever you live.

Scottish Power promises a half-price dishwasher if you sign up for its electricity, while London keeps it simple and proclaims a no-frills cheap tariff that undercuts everyone else. Hanson, the owner of Eastern, offers to install a free meter if you take its electricity, but throws in an extra specially low tariff if you also sign up for its gas. Not to be trumped by the opposition, British Gas offers the reverse - the cheapest possible gas supply tariff and a new cooker, as long as you take its electricity as well.

This is not the fantasy world that it might sound, because limited steps to open up the energy market for householders are to begin next year - and accelerate by the end of the decade.

If it all works, the impact on consumers of the current turmoil in the electricity industry - the bids by Hanson for Eastern Group, Southern Electricity International of the US for South Western, and Scottish Power for Manweb - will pale into insignificance.

There have been calls from Labour for a Monopolies and Mergers Commission inquiry into the takeovers, on the grounds that they will lead to a carve- up of the industry in which the consumer will suffer in the interests of shareholders.

But because there is little overlap between the bidders and the targets, most legal specialists in the field say there are no competition grounds for a reference of the bids announced so far.

The proposed Scottish Power takeover of Manweb has an extra dimension, in that it would ally a big generator with a REC, which introduces a new element of vertical integration to the industry.

But even there, RECs are allowed to generate up to 15 per cent of their own power already, and existing safeguards would probably prevent Scottish Power exploiting its new position as the owner of a distribution company.

The betting last week was that rather than refer the whole industry to the MMC, Stephen Littlechild, the electricity regulator, would be asked to set a series of conditions to ensure all the companies keep their accounts separate and transparent after a takeover. That would help him keep tabs on what the companies were up to.

If successful, the bids will certainly change the ownership of three companies, but opening gas and electricity to competition could change the entire structure of the industry.

The first important move will be a pilot scheme starting next spring in the South-west, which will allow competing suppliers to use the British Gas pipeline network to deliver gas to their own domestic customers.

If it works smoothly, the aim is to extend the scheme to the whole country. One company that is looking at selling gas to the home happens to be South Western Electricity.

The boot could be on the other foot from 1998. That is the date on which the electricity distribution companies are to lose their local monopolies, which will oblige them to allow competitors to sell power to their customers down their cables. Gas companies could supply electricity if they chose.

Enthusiasts for intensified competition, who include Tim Eggar, the industry and energy minister, believe that these developments will put right one of the mistakes that was made at the time of the electricity and gas privatisations.

The Government failed to separate adequately the natural monopoly - the network of cables that carry power - from the rest of the industry.

Looked at this way, the power cables are a highway available to everyone wishing to transmit electricity, just as the road network is a piece of public infrastructure open to any company or private individual that wants to send goods along it.

The theory is that by allowing lots of suppliers to use the electricity cables, competition rather than government-appointed regulators will become the main force in keeping prices down and standards up.

Big industrial customers have had the facility to shop around for their power supplies since 1990, and last year medium-sized commercial customers were allowed to go to competing suppliers. A third have now done so.

But the extension of this liberalisation to all electricity customers will be, declares the Commons Select Committee on Trade and Industry, "a vast exercise without precedent anywhere in the world, bringing 22 million consumers into the competitive market".

The select committee says the potential problems of achieving this change within three years have been wildly under-estimated, with nobody willing to take responsibility for ensuring it all goes smoothly.

The electricity industry believes that the timetable is achievable, but that the biggest problem remains agreeing a way of metering and billing that is not too expensive.

There is not even agreement yet on a limited pilot scheme similar to the one planned for the gas industry.

But if competition in electricity supply can be made to work, most of the role of such regulators as Professor Littlechild will eventually fade away. Their job would then simply be to police the natural monopolies - the wires that carry the power.