View from City Road: Confusion ahead for electricity consumers

The hullaballoo over new price controls for water looks destined to be repeated, if not surpassed, with electricity next week.

Whatever the criticisms of Ofwat's water review, the regulator was always open about the broad approach and the criteria used when setting prices for companies. No such luck with Offer, the electricity regulator, where things remain as clear as mud.

The consensus view is that Stephen Littlechild, the director-general of electricity supply, will impose a one- off price cut next April of between 10 and 20 per cent. Thereafter prices are expected to be capped at inflation minus 2 or 3 percentage points.

Tough as that might sound, the effect on household bills will actually be quite marginal, since the new controls apply to only a limited part of the total - distribution costs. The bill also includes generating costs and a charge for the National Grid. From next April fuel bills will carry full VAT, offsetting any benefit Professor Littlechild's reforms might achieve.

Furthermore, the new restrictions should still allow companies sufficient room to deliver real dividend increases of between 4 and 6 per cent until the end of the decade. That may not be as good as the 12 per cent real increase shareholders have enjoyed to date, but it hardly cuts them to the bone.

The chairmen of the electricity consumers committees, set up when the industry was privatised, are hoping for a big enough one-off cut in domestic bills to balance the effect of the VAT. They called this week for the balance of benefits of privatisation to be shifted to the customer. Don't count on it.