Andrew Taylor
Financial Times
November 26, 2001

All price controls on Britain’s household electricity and gas sales were lifted on Monday by Callum McCarthy, energy industry regulator.

The move represents a decisive step in the liberalisation of Britain’s energy markets, which began 15 years ago when the gas industry was privatised. Few people then expected that consumers would be able to move freely between suppliers, which would compete against each other on price and service.

Gas prices since then have fallen by 37 per cent in real terms, while average electricity prices, on the same basis, have fallen by 28 per cent since 1990, a year after the industry was privatised.

Almost 33 per cent of household gas customers and about 30 per cent of electricity consumers have switched from their former public sector suppliers since the markets became fully competitive in 1998 and 1999.

The increase in competition – some 100,000 electricity and 67,000 gas customers switch each week from their existing supplier – has persuaded the regulator that it is time to remove remaining price controls on energy retailers.

From Monday all energy retailers, including former public monopolies, will be free to raise or lower prices.

The removal of most price controls from household gas charges earlier this year prompted British Gas to raise its prices by an average 4.7 per cent in line with rivals.

Only charges paid by suppliers to monopoly owners of wires and pipes used to transmit electricity and gas to homes and industry will stay under regulatory price controls.

Ofgem, the regulator, says it retains sufficient powers under competition and utilities legislation to take action against suppliers that behave uncompetitively or mis-sell products.

Companies that misbehave or breach licence conditions can still be fined, it says.

It is concerned that generators, although outside price controls, can still manipulate power station prices despite the introduction last March of new electricity trading arrangements.

It wants government backing for the reintroduction of market abuse clauses in the operating licences of power stations.

A "catch-all" licence clause giving Ofgem wider powers to investigate and halt suspected market manipulation was thrown out last year by the Competition Commission following complaints from British Energy, the nuclear generator, and AES, a US energy group.

The Association of Electricity Producers says the reintroduction of the clauses is unnecessary, would increase costs, deter new investment and undermine earlier commission rulings.

The regulator also faces criticism over plans to develop new markets for balancing gas supply and demand and requiring electricity generators and suppliers to pay for access to the national grid.

Mr McCarthy says the new markets will identify where investment is most needed and make competition fairer and more effective.

The British market, he says, is one of the most competitive in Europe, providing a model for utility privatisation. "A liberalised and increasingly deregulated market for gas and electricity in Britain is working well. It has delivered large benefits to consumers in terms of quality, supply and price," he says.

"Since May 1999 every single household in Britain, and every industrial and commercial customer, has had complete choice as to which supplier provides its gas and electricity. All this has been achieved without any deterioration in customer standards …Interruptions to supply are even rarer today than they were a decade ago; our generating margin over peak demand stands at just under 30 per cent."