Research

Why retail electricity competition is bad for small consumers: British experience

Presentation to the international conference

Restoring Just and Reasonable Electricity Rates

Washington DC: 28-29 September 2002

Steve Thomas

Senior Research Fellow

Public Service International Research Unit (PSIRU)

School of Computing and Mathematics

University of Greenwich

30 Park Row

London SE10 9LS

UK

Tel: 44 208 331 9056

Fax: 44 208 331 8665

Email: Stephen.thomas@gre.ac.uk

Why retail electricity competition is bad for small consumers: British experience

1. Introduction

For most products, to suggest consumers would be better off served by a regulated monopoly than by a competitive market would be a heresy, but for electricity, experience in Britain suggests that this would indeed be the case. There are four main reasons for this:

• Competition is not a ‘free good’. Introducing competition imposes a range of additional costs that must be paid by consumers. In the case of electricity, these costs are very high and it is far from clear that the benefits will outweigh them;

• Retail electricity competition will result in a transfer of costs from large to small consumers because large consumers have the incentive, negotiating skill and resources to get the best deal from the market;

• Within small consumers, it will be the poorest consumers that do worst because competing retail suppliers will target rich consumers who consume more and who will be more likely to buy other services that their electricity company offers; and

• The breaking down of monopoly territories is already leading in Europe to a rapid concentration in the sector so that it is dominated by only a handful of companies that have no incentive to compete hard against each other.

In a well-regulated monopoly electricity system, electricity companies generally have little incentive to discriminate between classes of consumer:...