|
Select Committee on Trade and Industry First Report
|
Source: Centre for the study of Regulated Industries; also in Public Services Yearbook 1997-98 (forthcoming).
* Proposal referred to MMC.
36. Both electricity and
gas prices to customers have fallen since privatisation. Electricity
prices (before VAT) to domestic customers have fallen by 15% in
real terms, and industrial electricity prices to moderately large
users fell by about 21% in real terms.[52]
In 1995 industrial electricity and gas prices in real terms were
at their lowest since records began in 1970. However, not all
of this fall in prices is directly attributable to the price controls.
ESTUC argued that "the fall in electricity prices since
1992 owes more to favourable circumstances in the market for generation
fuels than to greater competition in supply".[53]
The DGES stated that primary fuel prices, including the prices
of coal and gas used by generators, have fallen since 1990/91,
and that "the impact of such reductions on prices cannot,
however, be considered independently of the introduction of competition
in the generation market".[54]
He estimated that of the 15% fall in electricity prices in real
terms to domestic customers since 1990/91, "about 5% is the
result of the operation of price controls on distribution, transmission
and supply charges. About 6% arises from reductions in the purchase
cost of generation which the RECs are permitted to pass through
to franchise customers under the supply price control. The remaining
4% is the result of reductions in the fossil fuel levy".[55]
Of the 21% fall in industrial prices, "just over 3% ...
can be attributed to the operation of price controls on distribution
and transmission charges, about 13% to reductions in generation
prices, and 5% to reductions in the levy".[56]
37. The price of gas to
domestic customers has fallen by 24% in real terms since privatisation,[57]
while prices to commercial and industrial gas customers have fallen
by 59% in real terms. In 1995, the latest year for which data
are available, UK industrial gas prices were the lowest in the
European Union.[58]
Table II below shows the extent to which the fall in prices to
consumers is associated with reduced wholesale gas prices and
to what extent it is the result of lower transportation, storage
and supply costs.
therms of Gas a year (real 1996 prices)
1 transportation,
storage, supply Source: Ev. p.268.
OFGAS told us that the substantial
reduction of prices to [industrial] customers was largely associated
with lower wholesale costs, and that "much of the real price
reduction to smaller customers who are still protected by price
controls is the result of direct regulatory intervention".[59]
The broad reductions referred to by OFGAS were confirmed by the
DTI, who stated that "around two-thirds of the fall in real
consumer prices ... was due to the fall in beach prices, with
around one-third attributable to the price cap on non-gas costs"
and that, during 1992 to 1996, "when beach prices have fallen
less sharply and have been subject to a separate capping arrangement,
the contribution to the fall in final gas prices (excluding VAT)
of the gas cost element in the formula and the non-gas cost element
have been similar" (see Table III).[60]
(A more detailed examination appears in paras 182-188).
(a) Movement in gas prices
in cash terms
(b) Movement in gas prices
in real terms
Note: Base year= 1990
Source: Ev. p.341.
38. The Trades Union Congress
and ESTUC argued that part of the productivity gains have also
been due to reductions in employment costs. ESTUC told us that
since 1989/90 employment in the RECs has fallen by 38%.[61]
Overall, in the electricity industry, "there have been job
losses of 50% in generation, 30% in transmission, and 16% in distribution".[62]
The DGGS said that "British Gas has achieved substantial
gains in labour productivity".[63]
During the period 1990 to 1995 there was a 43.6% fall in the
number of employees.[64]
Job losses in electricity and gas industries since privatisation
total some 45,000 (Company Reports HOC Library). We have not
attempted to quantify the fraction of the job losses which relate
to the productivity gains or to the savings passed on to the consumer
by way of price reductions but against any benefit or lower prices,
there is an offset for the cost to the nation of the related unemployment.
39. While many of the savings
made in both the gas and electricity industries cannot be directly
attributed to the operation of price controls or regulation, there
is no guarantee that these savings would have been identified
or passed on to the consumer if it had not been for the competitive
environment created by privatisation.
48 Ev. p.324. Back
50 OFGAS,
Annual Report 1995, pp.16-17. Back
51 OFFER,
Annual Report 1995, p.8; It should be noted that where
the controls (wholly or partly) cap revenue as well as prices,
then the outturn maximum allowed price may be different from the
regulators' forecast price caps, shown in the table. In practice,
the presentation of price cap controls by regulators may also
have included reference to cuts in the base tariff (ie Po),
for example, in the electricity distribution review for the year
1995/6, the price controls were calculated as a set of Po
cuts plus RPI-2 for that year. Back
52 Ev.
p.300. Back
53 Mem.
p.88. Back
54 Ev.
p.300. Back
57 Ev.
p.251. Back
58 HC Deb
(1996-97) c.1095 w. Back
59 Ev.
p.269. Back
60 Ev.
p.341. Back
61 Mem.
p.90. Back
62 Mem.
p.113. Back
63 Ev.
p.247. Back
64 Report
by the Comptroller and Auditor General on The Work of the
Directors General of Telecommunications, Gas Supply, Water Services
and Electricity Supply, 1996, p.179. Back | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| |
| © Parliamentary copyright 1997 | Prepared 18 March 1997 |