Ofgem's assessment of potential
20. Ofgem calculated that the existence of four independently-owned
operators offered the potential to achieve a 1.13% per annum reduction
in the operating expenditure between 2008 and 2023.
This represented cumulative benefits for consumers totalling £325 million
over the whole 15 year period.
21. The benefits of comparative regulation have been
evident in the electricity sector. Following the break up of the
electricity industry, Ofgem was able to compare the performance
of the 12 electricity companies to secure 7.7% annual cost reductions
between 1992 and 2003.
Ofgem expects to see the benefits materialise in the gas distribution
sector but was cautious in its extrapolation of potential savings
as there are fewer gas network owners.
22. Before the sales, Ofgem regulated National Grid
as the monopoly owner and operator of the gas networks, but with
no independent source of information to benchmark efficiency.
Ofgem sought to address these difficulties at the 2002 price control
when it required National Grid to provide performance information
on its regional networks.
23. Even without the sales, Ofgem could have set
stretching efficiency targets. It concluded that the existence
of regional comparators would have enabled a 3% annual reduction
in operating expenditure between 2008 and 2023.
Over 15 years, this represents a cumulative potential efficiency
saving of £830 million.
Figure 2: Ofgem's estimate of additional benefits
from the sales and NAO analysis of additional benefits available