Regulator backs down on electricity price cuts

The fall in electricity bills next year looks set to be much smaller than previously predicted, after the industry regulator yesterday softened his price control proposals in the face of intense criticism from electricity companies.

Professor Stephen Littlechild said domestic charges could drop by between pounds 15 and pounds 25 over the two years from next April, a fall of 7.5-10 per cent on an average pounds 270 bill excluding VAT. The new proposals compared with a forecast cut of 12 per cent in his previous consultation paper last month, worth pounds 32 off bills in just one year and more over two years.

The climbdown followed claims by the regional electricity companies (RECs) that the price controls would plunge their supply businesses into the red, discouraging new entrants into the market when domestic competition is introduced from April 1998. Some RECs had threatened to take the dispute to the Monopolies and Mergers Commission, a move which could have delayed competition.

Professor Littlechild said he had accepted the RECs' claim that introducing competition would mean higher administrative costs, with the likelihood of a much larger volume of customer queries. But he launched a defence of the competition experiment, insisting it would mean bigger savings in the long term. "You can't deliver by price restraint what you can deliver from competition," he said.

He claimed the new plans had probably averted the possibility of an MMC referral by the companies. "I don't think there's a justifiable basis for a company to go to the MMC. If it did, we've got a good case."

The price proposals related to the RECs' supply businesses, including administrative and billing systems, which account for about 7 per cent of domestic bills. The RECs' distribution divisions, responsible for 30 per cent of bills and most of their profits, are already subject to tough price cuts.

Professor Littlechild denied he had softened the price cuts after intervention from John Battle, the Industry Minister. In an unusual step, the Electricity Association had written to complain directly to Mr Battle, who has put himself in overall charge of delivering competition. "I haven't had any ministerial pressure brought to bear," said Professor Littlechild.

The power watchdog, Offer, gave other significant concessions to the RECs on the cost of introducing competition. The proposals raised the estimate of the costs which the industry could pass through to customer bills, from pounds 383m over five years to pounds 500m. However the figure remained well below the pounds 850m suggested by the companies.

The cost of competition, which covers the introduction of complex new computer systems to track customers as they switch supplier, will now be pounds 2.60 a year for each household, or 1 per cent of bills, a figure included in the overall estimate for bills. Offer's original projection was for customers to pay just pounds 1 towards the cost.

Consumer groups gave the proposals a cautious welcome, despite the prospect of smaller cuts in charges. Ken Prior, from the Electricity Consumers' Committees, said: "It's a pragmatic solution. On this basis competition will happen."

The biggest change in the fifth consultation document yesterday was in Offer's projections for generation costs, which account for almost 60 per cent of bills and are not price regulated.

The plans suggest a drop of 6-10 per cent in generating costs next year, largely because high price coal contracts expire from April. The previous proposals envisaged reductions of up to 12 per cent, with big cuts in the profit margin earned by the generators over the price in the wholesale power market, the Electricity Pool.

Shares in the generating companies soared on the concessions, which have effectively removed the threat of back-door price regulation. National Power shares rose 23p to 516.5p, while PowerGen gained 35p to 761.5p.

Other electricity company shares also rose, with Southern Electric, the last remaining independently quoted REC, adding 7p to 461p and ScottishPower rising 11p to 431.5p.

Simon Flowers, head of utility research at NatWest Securities, said : "The reductions in consumer bills will now largely come from the reductions in the coal contracts which were going to happen anyway next year, rather than the regulator forcing down contract prices between the generators and the RECs."

The latest proposals have added to the gloom for RJB Mining, the company which bought most British Coal pits at privatisation and this week announced the closure of the UK's newest mine.

Potential cuts in electricity bills 1998-99*

Company Generating costs Non-generating costs Total

Eastern -9.6% -0.5% -6.3%

East Midlands -7.7% -1.5% -5.3%

London -7.9% -0.8% -4.8%

Manweb -7.8% -1.3% -4.9%

Midlands -8.5% -1.7% -5.9%

Northern -8.3% -1.3% -5.3%

Norweb -8.0% -2.4% -5.8%

Seeboard -6.8% -0.5% -4.2%

Southern -8.4% -0.8% -5.3%

Swalec -8.2% -2.8% -5.5%

South Western -7.5% -2.3% -5.2%

Yorkshire -7.2% -0.3% -4.5%

ScottishPower -7.2% +3.8% -2.7%

Hydro-Electric -9.4% +7.8% -3.3%

Average England & Wales -8.0% -1.4% -5.3%

Average Scottish -8.3% +5.4% -3.0%

Average GB -8.0% -0.2% -4.8%

(*based on an average 8 per cent reduction in generating costs)

PROMOTED VIDEO
Arts and Entertainment
From Mean Girls to Mamet: Lindsay Lohan
theatre
Sport
Nathaniel Clyne (No 2) drives home his side's second goal past Arsenal’s David Ospina at the Emirates
footballArsenal 1 Southampton 2: Arsène Wenger pays the price for picking reserve side in Capital One Cup
News
Mike Tyson has led an appalling and sad life, but are we not a country that gives second chances?
peopleFormer boxer 'watched over' crash victim until ambulance arrived
Arts and Entertainment
Geena Davis, founder and chair of the Geena Davis Institute on Gender in Media
tv
News
i100
Travel
travelGallery And yes, it is indoors
News
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
tech
Arts and Entertainment
The Tiger Who Came To Tea
booksJudith Kerr on what inspired her latest animal intruder - 'The Crocodile Under the Bed'
News
i100
Arts and Entertainment
British actor Idris Elba is also a DJ and rapper who played Ibiza last summer
film
News
Alan Bennett criticised the lack of fairness in British society encapsulated by the private school system
peopleBut he does like Stewart Lee
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

IT Project manager - Web E-commerce

£65000 Per Annum Benefits + bonus: Clearwater People Solutions Ltd: If you are...

Trainee / Experienced Recruitment Consultants

£20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...

Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...

Trainee Recruitment Consultants - Banking & Finance

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Day In a Page

Syria air strikes: ‘Peace President’ Obama had to take stronger action against Isis after beheadings

Robert Fisk on Syria air strikes

‘Peace President’ Obama had to take stronger action against Isis after beheadings
Will Lindsay Lohan's West End debut be a turnaround moment for her career?

Lindsay Lohan's West End debut

Will this be a turnaround moment for her career?
'The Crocodile Under the Bed': Judith Kerr's follow-up to 'The Tiger Who Came to Tea'

The follow-up to 'The Tiger Who Came to Tea'

Judith Kerr on what inspired her latest animal intruder - 'The Crocodile Under the Bed' - which has taken 46 years to get into print
BBC Television Centre: A nostalgic wander through the sets, studios and ghosts of programmes past

BBC Television Centre

A nostalgic wander through the sets, studios and ghosts of programmes past
Lonesome George: Custody battle in Galapagos over tortoise remains

My George!

Custody battle in Galapagos over tortoise remains
10 best rucksacks for backpackers

Pack up your troubles: 10 best rucksacks for backpackers

Off on an intrepid trip? Experts from student trip specialists Real Gap and Quest Overseas recommend luggage for travellers on the move
Secret politics of the weekly shop

The politics of the weekly shop

New app reveals political leanings of food companies
Beam me up, Scottie!

Beam me up, Scottie!

Celebrity Trekkies from Alex Salmond to Barack Obama
Beware Wet Paint: The ICA's latest ambitious exhibition

Beware Wet Paint

The ICA's latest ambitious exhibition
Pink Floyd have produced some of rock's greatest ever album covers

Pink Floyd have produced some of rock's greatest ever album covers

Can 'The Endless River' carry on the tradition?
Sanctuary for the suicidal

Sanctuary for the suicidal

One mother's story of how London charity Maytree helped her son with his depression
A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world