Consumers 'could save pounds on power'

Friday, 9 May 2003 12:00 AM

The Government spending watchdog today argued "consumer inertia" is preventing domestic consumers from feeling the benefits of falling energy prices.

The National Audit Office (NAO) reports that there has been a 40 per cent fall in wholesale electricity prices since the New Electricity Trading Arrangements (NETA) were first considered in 1998.

The NAO could not ascertain exactly what proportion of the savings are a direct result of NETA but it is certain that not all the benefit is being passed onto consumers.

The report cites increased competition bought about by deregulation of the industry in 1999 as another key contributor to price cuts.

However, it argues that reluctance on the part of two thirds of consumers to seek out the best deal has stifled that competition and left consumers with misplaced loyalties paying up to 22 per cent more than they would if they "switched" supplier.

The report has prompted Ofgem to encourage consumers to take "a hard look" at their electricity bills and examine whether they are getting the best deal on the market.

Domestic consumers that have engaged in switching since 1998 have enjoyed savings of up to 17 per cent, with industrial and commercial consumers enjoying more significant savings due to their buying power - in the region of 25 per cent.

The NAO undertook the inquiry into the electricity industry to identify how NETA - introduced to cut wholesale electricity costs - has impacted on consumers' bills.

However, the NAO found that the majority of the savings were bought about by deregulation. Further, consumers are not feeling the full benefits of NETA.

Sir John Bourn, NAO Head said, "my report shows that there are a series of questions that the regulator will need to continue to keep under close scrutiny. How much of the savings in the wholesale market will be passed on to retail customers? How sure can we be that the lights will stay on? And can Ofgem monitor the market so as to prevent market abuse distorting prices?"

The NAO calls on the Office of Gas and Electricity Markets (Ofgem) to investigate why domestic consumers that have not switched supplier have benefited much less than others from falling wholesale prices.

Callum McCarthy, Ofgem Chief Executive said, "Today every customer who has never switched has at least five better deals available."

"But, as the NAO report confirms, six out of 10 customers are still with their incumbent supplier. This is why we are determined to encourage domestic customers to switch supplier and to ensure there are no barriers to prevent competition intensifying still further."

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