Opinion Piece: How regulated competition in the local energy market is benefiting domestic consumers
Opinion piece by Richard Williams, Head of Energy at the Consumer Council.
Householders rely on energy for almost all of their everyday activities. Recent Consumer Council research showed that in terms of household budgets, it is the top concern.
Along with the rest of Europe, energy prices in Northern Ireland have been high in recent years. However, over the last eighteen months we have seen a welcome break in the seemingly unstoppable rise in the cost of electricity and natural gas for domestic customers. Power NI last increased its electricity prices in July 2013, while SSE Airtricity last increased its natural gas prices in April 2013. Both have just over 70 per cent of domestic customers.
Both these suppliers are regulated by the Utility Regulator, who scrutinises the costs within the tariff. That means things like operating costs, the price the companies pay for the gas and electricity they sell on and the level of profit the companies can make, are a transparent part of the tariff setting process.
We now also have three electricity suppliers and one gas supplier competing with the regulated domestic suppliers. These companies set their prices independently with no scrutiny by the Regulator. The approach of these suppliers has been to view the regulated tariffs of as the ‘Price to Beat’. This has benefited domestic consumers with a typical electricity customer able to save up to £120 a year by switching supplier.
The overall effectiveness of competition is currently the subject of a review by the Regulator. Its initial findings contain few surprises. Consumers here are not used to switching and, amongst other things, the small size of the market and the small regulated retail margins are seen as barriers to new market entry by suppliers.
However, the crux of the issue is not only whether the current Northern Ireland retail energy market can be restructured to facilitate effective competition, but whether full blown competition is even desirable in Northern Ireland.
It is often argued that there will only be truly effective competition when there is wide range of suppliers that are unfettered by price regulation. Unfettered competition with no effective scrutiny is the scenario we have seen in Great Britain for a number of years. Yet, according to Which?, one in seven customers in Great Britain do not trust their energy company compared to three quarters who do in Northern Ireland. Furthermore, the current Northern Ireland system of regulated competition is delivering broadly the same price for domestic consumers as in Great Britain.
It seems that the transparency of the Northern Ireland model means consumers are confident that they are paying a fair price for their energy supply. These are qualities distinctly absent from the mainland market.
When it comes to making significant and possibly irreversible changes to the domestic energy market, the Regulator must ensure its decisions are based on firm evidence and consumer feedback about other models, whilst addressing the unique features of the Northern Ireland market.
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