Consumers in dark as utilities save £400m

The electricity industry has been accused by an independent watchdog of failing to pass on to consumers price cuts worth £400m raised by the liberalisation of the market.

The electricity industry has been accused by an independent watchdog of failing to pass on to consumers price cuts worth £400m raised by the liberalisation of the market.

Energywatch, the energy consumers' group set up by Parliament, will today challenge consistent claims by the industry regulator, Ofgem, that liberalisation of the wholesale market in electricity would lead to substantial cuts in prices to consumers and small businesses.

The group claims that average electricity bills have fallen by only 2.5 per cent, saving domestic consumers £153m since the introduction of the New Electricity Trading Arrangements (Neta) on 27 March 2001, though the wholesale price of electricity has fallen by 18 per cent.

Energywatch says consumer prices should have dropped by 9 per cent, since wholesale electricity costs make up 50 per cent of a bill. In effect, this leaves a "missing" £400m which electricity companies have failed to pass to consumers. The situation has been exacerbated by this month's removal of caps on electricity prices. Already, London Electricity and Scottish & Southern have increased electricity bills in some regions.

The only electricity customers to have benefited substantially under Neta are heavy industrial users, who can negotiate for lower prices, claim Energywatch. This sector has had average price cuts of 10 per cent.

Ann Robinson, the chairwoman of Energywatch, urged Ofgem to investigate the findings as part of its end-of-year review of Neta's operations. A spokesman for Ofgem said: "Consumers can now make significant savings by switching electricity suppliers, which we would encourage."

In many cases electricity suppliers were unable to reduce their prices to consumers because they were locked in to long-term fixed-price contracts with generators, he added. Ms Robinson said: "There may be a legitimate claim that extra costs have prevented electricity companies passing the savings to consumers, but these claims need to be investigated."

The Department of Trade and Industry distanced itself from the spat, claiming it had never predicted small consumers would benefit from significant savings through Neta. But a spokesman said its internal analysis suggested domestic prices had fallen by 3 per cent. He maintained the electricity market reforms had led to deep cuts in prices.

There are also growing concerns that the trading system is not providing generators with a sufficient incentive to invest in new plants.

Britain has an over-supply of electricity but, in the longer term, the country could face blackouts if generators fail to invest in new power stations, say industry analysts. International Power, AES and TXU have all cut capacity at their power stations over the last few months, and the National Audit Office is now investigating the market.

The DTI is expected to raise this issue in a consultation paper this month. It will question whether there is sufficient generating capacity to serve Britain over the next five, 10 and 15 years.