Analysis: The great power struggle

Margaret Thatcher?s revolution isn?t over yet. Seven years after the ex-prime minister was pushed onto her sword, the UK still leads the world in privatisation and deregulation, writes Tim Stammers.

By the end of this year, most of the UK?s #45 million gas and electricity industry will have been opened to full competition. They are the first of their kind in the world to do so.

But deregulation has its price. Instead of reducing costs, in the short term it could actually increase them. In the case of the electricity industry, deregulation will cost customers up to #15 per head over the next five years.

The reason for this is the complexity and size of the data systems required to service the open market. The electricity industry estimates that by the time it completes and tests its systems, it will have forked out a massive #650 million. The gas industry is now in the final stages of a #374 million overhaul of its central database, which will handle trading for its suppliers.

Right now, both industries could be forgiven for querying whether they are getting value for money from their #1 billion systems ? especially when they have been acting as tools of destruction rather than efficiency.

The gas industry was the first to swing its systems into action in April 1996, when householders in the West Country became the first in the UK to be offered the benefits of gas deregulation. Overnight, those that didn?t like the service from the incumbent supplier could take their business to a rival. It was a new dawn in the relationship between mankind and gas supplier, and was followed by the transfer of thousands of customers away from British Gas subsidiary Centrica. Next came the transfer of up to 1,000 customers a week back to Centrica, because they had never requested the switch in the first place. A fault in the central database was to blame.

Since then, the database has been rolled out to cover 4.5 million customers in different areas of the country. But the glitch in the system has not yet been completely eliminated and errors in ?reconciliation? are still running at around 1% of total.

Gas industry regulator Ofgas is pushing for deregulation to be rolled out through the rest of the UK before the end of the summer, bringing forward the schedule by a month. This comes in the face of warnings from a trade and industry committee at the House of Commons, which advised Ofgas last week to listen more carefully to the industry.

Centrica had told the committee that ?the roll-out of competition to the remaining regions in England and Wales still represents a considerable challenge and risk.? Why? In Centrica?s words, ?there are no precedents for systems and processes of equivalent size and complexity.?

The electricity industry hasn?t yet had the chance to try out its systems on customers because the systems have only just been delivered. The key meter registration system to be used by the majority of electricity companies was delivered only three months ago. The system, which will be at the heart of electricity deregulation, is the equivalent of the database that gave so many gas customers a surprise switch. It is currently being tested.

Last week, energy minister John Battle announced that electricity deregulation will not start in April as originally planned. A start date of September has been pencilled in instead. The move surprised no one at all.