The Price of Power: Cuts in electricity bills will save most customers pounds 80: Regulator denies being too soft on companies and says price caps are tough but fair

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The Independent Online
CONSUMERS across the country will see wide variations in savings on electricity bills after price caps imposed by the regulator, Offer.

Average household bills will fall by up to pounds 16 next April. However, only customers served by Manweb, Northern Electric and South Wales Electricity are earmarked for the full pounds 16 cut.

Customers of Eastern Electricity, East Midlands and Southern Electric will have average price cuts of only pounds 12 in April, while those in the rest of England and Wales should see electricity prices fall by about pounds 14 as a result of this review. Thereafter, all the companies will have to keep prices capped at inflation minus two percentage points.

Professor Stephen Littlechild said the cuts would save customers pounds 2.5bn over five years. Savings for each household customer would vary from pounds 70 to pounds 90, with the majority saving pounds 80. The new price controls mean that electricity distribution prices will be cut by between 11 per cent and 17 per cent in April next year and then be capped by the inflation-linked formula. However, the reduction in consumers' bills is much less because distribution accounts for only a quarter of the average household bill.

Offer said that it was impossible to predict what bills would be because they were made up of a variety of factors, including the cost of generation, long-distance transmission and a subsidy for nuclear power and renewable energy.

Announcing the changes, Professor Littlechild said it was clear that the regional electricity companies' revenues did not need to be as high as in the past and that prices must come down. Nevertheless, he rejected calls for an even harsher regime for the industry.

He said that the review was 'as tough as he could reasonably impose' on companies and their shareholders and that customers would always want more. Professor Littlechild said that VAT on domestic fuel bills, which will wipe out any benefit of his cuts, was a matter for the Government.

He denied that he had been too soft on the companies in the past. He said the Government had set the initial price controls five years ago: 'Now those terms are finished it's time for me to crack down - and that's what I'm doing.' He also refused to say that the Government had been lax in setting the original price controls, but added: 'I have perhaps looked at this rather more thoroughly than the Government did at the time.'

The review shocked environmentalists, who had expected the controls to include measures to raise money for energy efficiency. Andrew Warren, director of the Association for the Conservation of Energy, said that the lack of action threatens the future of the Government's Energy Saving Trust and could mean Britain will not meet its targets on global warming. He said that ministers had hoped about pounds 200m a year could eventually be raised through electricity bills.

Professor Littlechild said that he had already taken measures which would allow pounds 100m for the trust to be raised through customers' bills and that more would not be appropriate. He said that raising very large amounts through household bills was akin to taxation.

His stance is similar to that taken by Clare Spottiswoode, the gas industry regulator. Dr Eoin Lees, chief executive of the trust, said: 'Both regulators have now sent a clear message that any future progress in energy efficiency is firmly in the Government's court.

'If the Government is serious about fulfilling its international environmental commitments it must get on with the means of delivering them,' he added.

(Photograph, graph and table omitted)

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