designated period of time) has proven to be very popular as a way of insulating customers from potential future price hikes. Four out of the six big UK utilities offer a capped or fixed price tariff in some form for both gas and power, while RWE npower has one for gas-only. Scottish and Southern Energy (SSE) is the only one without such a scheme, but a survey of the deals on offer by Datamonitor.com has found that overall, its tariffs are the lowest amongst the big six anyway. There is also a growing demand for green tariffs. These can take a number of forms, such as energy from a renewable source, a carbon neutral source, energy trust funds (where money is paid into an environmental scheme
on behalf of the customer) or energy reduction schemes. Another area where utilities have tried to be innovative is in the administration of points or rewards schemes. These may include points schemes like air miles or the nectar card, and SSE has a tariff that rewards customers with Argos vouchers. These are normally charged at a monthly rate and include engineer call-outs and some agreed servicing intervals. (Cyberium.co.uk, 2006)
Privatisation of British Gas
What is privatisation? In its broadest sense, privatisation involves the transfer of assets or different forms of economic activity from the public sector to the private sector. In the United Kingdom such transfers occurred throughout the 1980s and 1990s under different Conservative administrations. The British Gas industry has been privatised under the sale of government-owned assets. The government’s case for privatisation centred round the claim that the sale of state-owned businesses would improve their efficiency and general performance, and would give rise to increased competition that would broaden consumer choice. (Worthington and Britton, 2003) After more than 20 years after privatisation of British gas industry it is now time to review benefits for public customers. By the end of March 2005, around 43 per cent of all domestic gas and electricity customers in Great Britain were no longer with their home supplier. Overall, domestic customers have seen prices fall for all fuel and light by 17 per cent in real terms in the ten years to 2004, although prices in 2004 were higher than in 2003. There are significant savings available to most domestic customers by changing gas and electricity suppliers. Overall, industrial customers have seen prices fall for all fuel by 8 per cent in real terms in the ten years to 2004, (including the Climate Change Levy), although prices in 2004 were higher than in 2003. In April 2002, the industry regulator, Ofgem lifted the remaining supply price controls on providers of gas and electricity. These price controls had been introduced prior to competition to ensure better prices for customers, who were at the time still supplied by monopoly businesses. Ofgem still regulates, through price controls, the monopoly companies who operate the pipes and wires, i.e. National Grid Transco (NGT), the two Scottish transmission businesses and the electricity distribution companies. Together with price controls and other developments in the energy industry, competition has helped to bring lower prices to domestic customers. The continued growth of the non-home supplier market for both gas and electricity is an encouraging sign for competition, given the savings on offer to most customers who have changed supplier. In addition, the overall rate of transfer for both fuels continues at a very high rate, averaging around 300,000 a month in the first quarter of 2005 for electricity and around 250,000 a month in the same period for gas. However, not all of this transfer activity results in a growth in the number of customers no longer with their home supplier. Many of these transfers will be as a result of customers transferring between two non-
home suppliers, or transferring back to the home supplier for their region. In April 2004, Ofgem published the “Domestic competitive market review”, which used net transfer rates to analyse competition. The net transfer rate looks at the rate of customers transferring away from their home supplier net of those transferring back and gives an idea of how the market for non-home suppliers is growing. Ofgem found that for gas and electricity in the year to December 2003, the net transfer rate was about 39 per cent. The proportion of customers on each payment method in the gas market has changed over the years.
The proportion of credit customers has fallen from 51 per cent at the start of 2001 to 43 per cent at the end of March 2005. The proportion of prepayment meter customers has risen slightly, from 8 per cent in 2001 to 10 per cent in March 2005, whilst the proportion of direct debit customers has risen from 41 per cent in 2001 to 47 per cent in March 2005. It is possible that some of these new direct debit customers are customers who have changed to direct debit as a means of payment to take full advantage of the savings on offer when switching supplier. The percentage of prepayment meter customers who have switched
supplier has risen from 13 per cent at the start of 2001 to 29 per cent at the end
of March 2005. Over the same period, the percentage of customers who have
transferred away from their home supplier paying by direct debit has risen from
34 per cent to 50 per cent, and the percentage of standard credit customers who
have transferred away from their home supplier has risen from 29 per cent to 38
per cent. Direct debit customers have embraced the competitive market more
than standard credit customers and prepayment meter customers. The lower
level of switching amongst prepayment meter customers could be due to the fact
that many prepayment customers change payment method when they switch
suppliers. Ofgem monitors the distribution system performance of each public
gas supplier. All licensees who operate transmission or distribution systems are required to report annually on their performance in maintaining system security, availability of service and quality of service. This provides a picture of the continuity and quality of supply experienced by final customers. The regulatory framework places an obligation on distributors to connect any customer to an electricity or gas supply on request and allows the distributor to make requests in exchange, for example, for information and payment. It also effectively imposes a universal service obligation on supply companies that requires them to provide high levels of service. The standards required are set out in the licenses that supply companies must hold in order to operate. Transmission system operators must report annually to the Regulatory Authority on their performance in terms of the availability, security and quality of supply. They have statutory duties to develop and maintain an efficient, co-ordinated and economical system of transmission and to offer non-discriminatory terms for connection to or use of the system by licensed suppliers or operators. All remaining price controls for domestic customers were lifted from 1 April 2002, following a period of consultation. Ofgem’s view was that competition was developed enough in the domestic market to allow them to lift the price controls, although there were concerns raised by others, including energywatch, in response to the consultation about the effects this may have on the prices on offer to consumers, especially those using the prepayment method. Energywatch took over responsibility from Ofgem for producing price comparison factsheets in October 2001. These factsheets assist customers in choosing gas and electricity suppliers and are easily accessible through their website. Nine companies have signed up to energywatch’s voluntary code aimed at companies providing internet -based pricing comparisons. Customers without personal internet access can access these sites via libraries and advice centres around the country. (Department of Trade & Industry)
Conclusion
After over 20 years after privatisation of British gas industry customers benefit from lower prices on that market, quality customer service and freedom of choice of a supplier. Hopefully, by the end of next decade customers will have even better offers determined by lower prices and probably common use ofmore new ecological sources of power supply.
References:
About.com (2007), Develop Your USP, Jacci Howard Bear, [accessed 10 January 2007]
Cyberium.co.uk (2006), Playing the Energy Market, David Thorpe, [accessed 10 January 2007]
Energylinx.co.uk (2006), UK Energy Industry, [accessed 10 January 2007]
Worthington Ian and Chris Britton (2003), The Business Environment, Pearson Education Limited, Essex, Fourth Edition, pp. 392- 410
Bibliography:
Department of Trade and Industry,
Lipsey Richard G. and Chrystal K. Alec (2004), Economics, Oxford University Press, Oxford, Tenth Edition
Mullins J Laurie (1996), Management and Organisational Behaviour, Pitman Publishing
Office of Fair Trading,
