Shake-up powers big price cuts

THE new open market in electricity trading has helped deliver a 40% reduction in wholesale power prices over the past four years, led to lower domestic bills and ended the restrictive industry practices that formerly kept prices artificially inflated.

These are the conclusions of a report by the Ofgem regulator into the workings of Neta, the New Electricity Trading Arrangements, which replaced the much-criticised Electricity Pool arrangements 16 months ago.

The review found wholesale prices had fallen 40% since plans for Neta were introduced in 1998 and fell 20% in the first year of Neta's operations to the end of March 2002. Much of this is due to cyclical falls in fuel prices, overcapacity of generating plant in Britain and increased competition between the generators.

However, Ofgem said Neta had played a major part in introducing flexibility into the balancing and settlement system, eradicating large spikes in prices if generators have produced too much or too little and where suppliers are out of balance on the amount of electricity they have contracted to buy compared with customer usage.

Ofgem chief executive Callum McCarthy said: 'In terms of end prices for customers, major energy users are already benefiting from reductions in wholesale prices and these lower prices are beginning to feed through to domestic customers.'

He said the old Electricity Pool was 'flawed' because it allowed generators not to pass on the benefits of falling production costs.

Ofgem claimed domestic users can now make savings of up to 25% or £63 off the average annual bill by switching suppliers.