Electricity competition problems still unsolved

The Government is examining ways to iron out one of the main problems standing in the way of domestic electricity competition, the issue of who takes responsibility for customers when their supplier goes bust. As Chris Godsmark, Business Correspondent, reports, the opening of the market is now almost certain to be delayed beyond April.

With less than three months left before the planned introduction of electricity competition, the industry is at loggerheads over who should intervene if a power supplier gets into financial difficulties. The current arrangements for competition allow the industry regulator to take away the operating licence of a supplier, but leaves the onus on customers to sign alternative contracts with new suppliers.

Power companies want new rules in place before competition starts to give the regulator the power to pass existing customer contracts over to a new designated supplier. The Electricity Pool, the wholesale power trading body, has proposed a temporary solution through its existing relationships with regional electricity companies. But in a letter to the industry last month Offer, the electricity watchdog, claimed existing licence provisions were sufficient to deal with the issue.

It emerged last night that the Department of Trade and Industry is in discussions with Offer about the problem and is examining the longer- term possibility of legislation to cover supplier default, along the lines of rules put in place in the gas industry. However any changes recommended by the probe, which forms part of the wider review of utility regulation, would come well beyond the April start date for competition.

Offer will publish a consultation paper on the issue as early as next week in an attempt to dampen the criticism. But Andrew Claxton, the Pool's chief executive, warned that his own proposal was "the only solution currently on the table."

He said: "People in this industry are saying we don't think this is an acceptable risk to live with. Unless we get some support from Offer this will be difficult to implement."

The DTI last night backed Offer's approach. "We don't believe this is an issue stopping competition, because the regulator has responsibility to ensure suppliers are able to finance their operations," said a spokesman.

However Mr Claxton insisted legislation remained the best way out of the dilemma and said the DTI appeared to be reconsidering the issue. "This has been around for a couple of years and the DTI have previously steadfastly refused to do anything about it. It's very frustrating."

It also emerged yesterday that John Battle, the Industry Minister, is to meet with electricity chief executives in two week's time and is likely to announce a delay of at least three months to competition.

The meeting, due around 22 January, is the third industry "summit" called by Mr Battle, who has put himself in personal charge of competition. Next week PA Consulting, the group monitoring the process for Offer, will deliver a report which is expected to warn that complex computer systems planned by suppliers will not be ready for April.

The plan was for four companies, Eastern, Seeboard, Manweb and Yorkshire, to begin competition in their regions on time, with other suppliers joining in a phased introduction by September. But Professor Stephen Littlechild, the regulator, admitted last month that competition was "very unlikely" to start on time.