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Consumers Union released today a report summarizing the state of the UK electricity market after the aggressive deregulation of its energy market over the last decade. The UK market makes an excellent learning example for the US as it considers deregulation.
Within the last few weeks, several power producers have announced price increases, setting the stage for the release of this study. Concurrently, the UK organization Energywatch is protesting on behalf of the large numbers of consumers disconnected by the electric company in the new marketplace.
The United Kingdom began deregulating its electric market years before the U.S. Thus, the UK provides the best example of what can be expected in the deregulated residential retail electric market in the United States. . An extensive review of the evidence found:
Questionable price savings: Large drops in wholesale market prices were not fully passed on to residential consumers in the deregulated marketplace.
Increase in complaints: The volume of complaints about energy companies jumped after deregulation, and new types of complaints such as unauthorized switching of service (“slamming”) arose.
Failure of competition to develop: Rather than compete for new customers, companies are relying on customer inertia to keep their existing customer base.
Higher prices for low-income consumers: Since deregulation began in 1990, there has been a marked increase in the use of prepayment meters, resulting in low-income customers paying more for their electricity.
These findings lead us to recommend against implementing plans to replace traditional regulation with “retail competition” for consumers. Where a state or country has already enacted such a plan, it should be prepared to address and remedy each of the problems identified above.
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