Data Gathering and Costing Rate Design
2.9. The U K Electricity Industry
2.9.2. Impact of competition on UK customers
2.9.2.1. Competition in the supply industry
The introduction of secondary/more suppliers has been highly successful. Typical commercial and small industrial customers have seen a decrease in price since the reform - having the choice to choose suppliers. However, very large customers have seen their price increase by a small percentage due to losses of subsidies which was a privilege days before privatization took place.
However, domestic customers have seen an increase in prices due to the fact that utility limits have fallen, however this was an expected turn of events. In addition, unbundling has resulted in a greater price transparency of the true value of services (sic: cost-reflective) provided by the constituent parts of the industry. In addition, by charging customers different prices at different times of the day (time-of-use), usage patterns may be altered in favour of the cheaper time periods thus giving incentives for demand-side management and efficient use of electricity. The UK utilities have so far shown themselves to be reasonably flexible in tailoring individual contracts to specific load management requirements especially to the very large customers.
2.9.2.2. Service levels
Service levels have improved as the regulator reported, "high level of performance was common to all Regional Electricity Companies". The mandate to Regional Electricity Companies was to offer their customers Guaranteed Standards based on the industry's Standards of Performance in areas such as the timing of connection, visits, meter reading, billing and so on. Stringent rules have been put in place for the Regional Electricity Companies (distributors) to pay a penalty to customers should any of the standard not be met.
In light of the above-mentioned service provided, in 1994 customers saw:
• A 14% drop in the total number of complaints to the regulator on electricity supply
• A 67% fall in disconnections as Regional Electricity Companies encourage new payment methods such as budget and pre-payment schemes, direct debits and standing orders.
• A tightening of Standards of Performance, which guarantee customers a minimum level of service, and the introduction of new standards to encourage energy efficiency.
2.9.2.3. Energy efficiency and the environment
Most generating companies began complying with government emission targets where they are developing environmentally friendly generation.
2.9.2.4. Suppliers and the regulator
Regional Electricity Companies liaison with the Commission regulator to form good working relationships and to adopt a non-confrontational stance with the government.
Each Regional Electricity Company has a supply and a distribution arm. Distribution accounts for 80% of the profits. The regulator thus ensured that distribution prices where tightened and under control as soon as privatization was a reality to protect the customer's interest by preventing utilities from making wind-fall profits.
2.9.2.5. Customer's perspective and impact
Cecil Parkinson, Secretary of State for Energy made the following comment in February 1988 regarding the UK restructuring and customer wellbeing; "Decisions about the supply of electricity should be driven by the needs of the customer and competition is the best guarantee of customers' interest"
Electricity customers have seen a steady improvement in benefits since restructuring as discussed, through there are conflicting comments, many do not perceive or realize this.
The regulator stated that: "Customers want high standards of service from electricity companies as well as lower prices...New initiatives to enhance customer service and promote energy efficiency were put in place...there was a substantial progress in the development of competition in supply and generation" Professor Staphen Littlechild, Director General of Electricity Supply.
From the Andersen study, Falato and Mcintosh have come up with a comprehensive approach forward for the UK market. That "it will be well into the next decade before the UK electricity industry becomes a truly competitive marketplace; it may take that long for greater competition to develop in generation and for the full impact of retail wheeling to take hold. In the meantime, UK players will have to continually revise their strategies and change their organizations along more customer focused lines whilst ensuring that increasing value is added to both the businesses' consumers and shareholders".
In conclusion, the UK electricity market has come a long way since 1989, but as the regulator has commented in his 1995 annual report "...there is much that still needs to be done, particularly in further revising distribution and transmission price controls, in establishing more effective competition in generation, and in developing arrangements for the competitive supply market".
Indeed, this is a good restructuring model for the South African electricity distribution industry to draw from bearing in mind the economic sector and types of customers amongst other aspects. The lights have stayed on in the UK sector at the same time;
the country has managed to retain a good reserve margin, which currently stands at 20%. This is a very good system that electricity sectors around the world can learn from and try to imitate. Although for a developing country such as South Africa, these findings seem too good to be true and it would probably take a developing country many more decades to come to get close to a stable, efficient market.
This model is an example of how competition can exist in the electricity industry whilst maintaining security of supply. Even six years after privatization the lights stayed on. Moreover, the industry has also developed long-term security insured through new build by both incumbent producers and new Independent Power
Producers (IPPs). Many countries around the world such as Poland and the US are looking to the UK model as a basis for developing their own competitive market for electricity. The UK system is very complex, so not surprisingly it's got its flaws. Most commodity markets evolve over time.