6 Customer views
68. One of the issues that emerged during our Network
Resilience inquiry was whether customers would be willing to pay
extra for a more robust network. We were then told that the DNOs'
charges formed about 20 percent (about £50-£60 pa) of
the average domestic electricity bill.[79]
Ofgem has since estimated that they comprise about 25 percent.[80]
Whichever the true figure, such costs have fallen as a proportion
of the bill as generating costs have risen. Ofgem's view in March
was that customers were willing to accept some risk of power cuts,
but there was at that time no clear indication of how customers
valued reliability and the cost of blackouts as against higher
electricity prices. However, Ofgem said that it would conduct
a survey into the issue in the context of the distribution price
control review.[81]
69. In its June proposals, Ofgem reported the results
of the second phase of its research into consumers' priorities
and their willingness to pay for quality of service improvements.
This research, which was carried out by Accent Marketing &
Research, covered all 14 DNO areas and was based on 2118 face-to-face
interviews with domestic consumers, and 1965 telephone interviews
with business consumers.[82]
The main findings of the research were that:
— there
was low awareness of current service standards;
— both domestic and business consumers
had high expectations in terms of quality of service;
— consumers expected rapid restoration
of power, even after a major storm;
— consumers were prepared to pay "a
significant amount" for reductions in frequency of power
cuts, but only in their own area;
— improvements in network resilience were
valued by some consumers but not all;
— a significant improvement, such as major
power cuts being reduced to once every five years rather than
once a year, would be valued by all consumers, but less so than
improving restoration times;
— consumers were prepared to pay for reductions
in the duration of power cuts; and
— domestic consumers would be willing to
pay higher bills to ensure that they received accurate information
during a power cut.[83]
70. Accent's report quantified the amount extra that
customers were willing to pay for specific improvements. Although
there were some differences between urban and rural customers,
both types of customer expressed themselves willing to pay an
extra about £20 a year to avoid a power cut in their local
area; about £22 a year to reduce the maximum time for restoration
of supply after major storms from the current 48 hour limit to
24 hours; and again about £22 a year to reduce the average
duration of power cuts by 20 minutes (at present the average duration
per customer is about 80 minutes).[84]
71. While accepting that the results of the survey
provided important information on customers' priorities, Ofgem
commented: "The scale of the willingness to pay indicated
by the survey is, in some cases, very high in comparison to other
studies that have been undertaken in the UK and abroad. This casts
some doubt on the results of the survey."[85]
We were surprised that Ofgem dismissed in this way the results
of the survey that it had commissioned, and we asked the witnesses
from Ofgem whether they had any basis for their doubts about the
findings. They replied that, from their discussions with other
energy regulators about consumer views in their countries—and
especially in comparison with the results of a similar survey
in Italy—the Accent survey seemed to diverge significantly
from other surveys of consumer opinion.[86]
72. We understand
that Ofgem did not want to base its whole approach to the 2005-10
price control review on the results of one survey. However, Ofgem
seems unwilling to accept that British consumers may place a significantly
higher premium on improved network resilience than other consumers
do and than Ofgem appears to consider that they ought to.
Any such reluctance on Ofgem's part would be a natural consequence
of its concentration on reducing prices to consumers to the greatest
extent compatible with ensuring continuing security of supply—a
reflection of the fact that its primary duty in statute is to
protect the interests of consumers by "promoting effective
competition" within the electricity industry.[87]
We would be unhappy if we thought
that the regulator was insisting that it knew better than consumers
what they wanted.
73. We note, however,
the regulator's assurance that the results of the survey have
been taken into account in setting Quality of Service targets
for the distribution companies. Our analysis of Ofgem's proposals
confirms this, in
particular the emphasis on speeding up restoration of supplies
after unplanned interruptions.[88]
This is enough at present.
79 Third Report, paragraph 85 Back
80
November proposals, Summary; Q 3 (Part 2) Back
81
Third Report, paragraph 86 Back
82
Consumer Expectations of DNOs and WTP [Willingness To Pay]
for Improvements in Service, dated June 2004, available on
Ofgem's website at www.ofgem.gov.uk (referred to from now on as
'Consumer Survey') Back
83
Summarised in June proposals, para 4.4 Back
84
Executive summary to Consumer Survey Back
85
June proposals, para 4.5 Back
86
Qq 17-18 (Part 2) Back
87
Section 13 of the Utilities Act 2000, substituting for section
3 of the Electricity Act 1989 Back
88
See June proposals, para 4.6 and Qq 19-20 (Part 2) Back
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