Electricity customers 'losing out on savings'

Cheaper metering technology "should be developed"

Only a small percentage of households have seen their electricity bills fall significantly since domestic supplies were opened up to competition, according to the government's spending watchdog has said.

The National Audit Office said 6.5 million customers - one in four - had saved an average of £45 a year, or 15% of their bills, by changing supplier since September 1998.

It is a sad state of affairs that the poorest members of society are actually paying more for their electricity than the rest of us

David Davis, Public Accounts Committee

But it said most customers had yet to obtain significant financial benefits from competition, and there was "scope for the benefits to be spread wider".

In particular, those customers who used pre-payment meters, mostly those in lower income groups who spent a higher proportion of their income on heating, were hit harder due to higher costs.

'Urgent action needed'

The NAO found around 25% of households with an annual income of less than £17,500 used pre-payment meters, compared to only 7% on higher incomes.

They typically paid a higher rate than those paying by quarterly credit or direct debit tariffs.

Reacting to the NAO finding, the Public Accounts Committee called on industry regulator Ofgem - the Office of Gas and Electricity Markets - to take urgent action to ensure the four million pre-payment meter customers got a better deal.

Around 19 million customers have not switched suppliers

Committee chairman David Davis said: "It is a sad state of affairs that the poorest members of society are actually paying more for their electricity, not just as a percentage of their income, but in real terms, than the rest of us."

The NAO noted that Ofgem was already considering measures to help such customers, including consulting on removing or curtailing suppliers' right to block customers with outstanding debt from changing their provider.

It urged Ofgem to continue to work with the industry to reduce the costs borne by pre-payment customers, such as by supporting the development of cheaper metering technology.

Further savings possible

The NAO estimated 19 million customers who had yet to change supplier could save up to 13% of their annual bills - an average £35 a year - if they were to switch.

It also calculated 88% of those customers who had already switched suppliers could make further significant savings by doing so again.

Customers who did not switch had gained around £23 a year through price controls, the NAO added.

It also noted that a different market structure in Scotland, where there were fewer suppliers, had contributed to lower rates of customer switching than elsewhere in Britain.

The NAO urged Ofgem to make the Scottish market more competitive by pressing ahead with the separation of the ownership of distribution, supply and transmission businesses.