Cuts in power bills not passed on to households - NAO

The Government's spending watchdog accused electricity companies yesterday of failing to pass on price reductions to domestic consumers despite a big fall in wholesale costs after the introduction of new trading arrangements.

The Government's spending watchdog accused electricity companies yesterday of failing to pass on price reductions to domestic consumers despite a big fall in wholesale costs after the introduction of new trading arrangements.

Sir John Bourn, head of the National Audit Office, said that while industrial and commercial users had seen bills come down by up to 18 per cent, prices for domestic customers had fallen little except for those households which had switched supplier.

The NAO report also said that while the new electricity trading arrangements or Neta had "facilitated" falls of up to 40 per cent in wholesale prices since 1998, it was not clear how much of this was due to Neta and how much to increased competition among electricity producers.

Sir John also warned there was no guarantee that Neta would ensure security of supply by giving companies the incentive to build more power stations to meet a potential shortfall in future generating capacity.

His report called on the regulator, Ofgem, to answer three questions. "How much of the savings in the wholesale market will be passed on to retail customers. How can we be sure that the lights will stay on? And can Ofgem monitor the market so as to prevent market abuse from distorting prices?"

Ofgem said that many of the NAO's recommendations were already being implemented. It also said that the NAO report backed up its repeated advice to electricity customers to switch if they wanted to save up to £50 a year on their bills.

Six in ten households are still with their local supplier and paying 22 per cent more than they needed to as a result, according to Ofgem.

The consumer watchdog Energywatch said that its concerns about consumers missing out on savings in electricity bills had been reinforced by the NAO report. Ann Robinson, chairwoman of the body, said the issues raised by Sir John were ones it had been expressing concern about for a considerable time.