The switch is on
WHAT'S THE STORY WITH BORD GÁIS GOING ELECTRIC?:THE IRISH electricity market displayed a bus-like quality last week when consumers who’d waited years for just one rival to challenge the ESB’s monopoly in the domestic market saw two come along at once.
Although the household electricity market has, technically, been open to competition for nearly four years, energy suppliers have been notoriously reluctant to actually deal with domestic customers, preferring instead to concentrate on more lucrative, easier to administer business accounts.
That’s all changed now and consumers are the big winners. Formally launching itself onto the domestic electricity market last Wednesday, Bord Gáis committed itself to giving customers who join its network discounts of between 10 per cent and 14 per cent on the regulated price which the ESB charges.
In addition to a minimum saving of 10 per cent on the ESB unit rates in the first year (with a committed discount of at least 5 per cent in the second year) the company is offering a 2 per cent loyalty discount to its natural gas customers and a 2 per cent discount to all customers who pay by direct debit.
Even if, as is widely expected, the ESB drops its prices by 10 per cent in the coming weeks, consumers who switch to Bord Gáis will be paying 24 per cent less in electricity charges than they are now.
Bord Gáis is not the only electricity company offering discounts at present. Airtricity has been operating in the business market for years and is now selling consumers power for 10 per cent less than the ESB can manage.
Bord Gáis also announced plans to invest in wind farms and small generating plants and to spend €400 million on its own power plant in Cork which will have the capacity to supply 400,000 homes. Once it is up and running it will drive prices down because electricity generation makes up around three-quarters of the costs, with distribution accounting for just 5 per cent of the total cost which appears on your bill.
Bord Gáis hopes to have 100,000 customers by the end of the year but, if the first few days are anything to go buy, that target will be reached within six months. On its first day of operation, 3,000 people had switched over the phone and through its website, www.thebigswitch.ie. By lunchtime on Friday, the number had climbed to 11,000. “Business has been flying,” a spokeswoman told Pricewatch. “We really have been delighted with the take-up.”
Launching the new service, the company’s chief executive John Mullins said, “This is about offering customers a real choice but more importantly the opportunity to make significant savings in their electricity costs.” He also promised to undercut the ESB for the next three years and set Bord Gáis an ambitious target of luring up to one million of the 1.7 million domestic accounts from its main competitor within three years.
Mullins also vowed that, whatever rate the regulator sets for ESB in the next three years, Bord Gáis will continue to offer a lower tariff.
AND HOW DIDthe ESB respond to the challenge? In the normal course of events, a price war would have ensued, with the very profitable ESB in the fortunate position of having a substantial war-chest to take on the upstarts.
Rather than announcing lower prices, however, the ESB did nothing. The regulatory system that is in place at present prevents the ESB from reacting, as it must get approval for all price moves, up and down, from the Commission for Energy Regulation (CER).
After Bord Gáis announced its tariffs, an ESB spokesman stressed the company was required to charge rates set by the CER. “It is not allowed to discount from that rate,” he said. “It is open for all competitors to charge what they like.”
Dermot Jewell, chief executive of the Consumer Association of Ireland, expressed his dismay at the ESB’s inability to react to the increased competition in a way which would benefit consumers and told Pricewatch that the regulator needs to act swiftly to allow the ESB to respond to new challenges.
“Considering the current economic difficulties, it should be made possible for the regulator to act swiftly to allow the ESB to reduce its prices. Falling electricity prices are badly needed and will be of benefit to all elements of Irish society.”
When the Telecom Éireann monopoly was broken in the 1990s, the telecoms sector was flooded with new entrants, but, while prices fell significantly, many consumers were left baffled by the new choices available to them. The packages being offered were complex and many of the companies were start-ups and clueless when it came to the provision of quality customer service. Switching providers was frequently problematic, resulting in long breaks in service and billing mix-ups.
WHAT’S VERY POSITIVEfrom a consumer perspective in the opening up of the electricity market is that none of these problems are likely to manifest themselves. Switching from one provider to another can be done in seconds online or over the phone. Neither Bord Gáis or Airtricty insist on people signing up to minimum-period contracts and the prices are clear so the savings are self-evident.
Easy to sign up? Big savings? No commitment? There has to be a catch, surely? Bord Gáis insists that there isn’t, and others are queuing up to agree.
“This is great news for consumers, and shows that the balance of power is starting to shift their way,” Bill Prasifka, chairperson of the Competition Authority, told Pricewatch. “We’ve been calling for more competition in electricity for many years. This is a good start, and the thousands of people who have switched to Bord Gáis in such a short time obviously agree with us. It’s another great example of how competition can benefit consumers through lower prices.”
Dermott Jewell is also convinced. “The simplicity of the scheme is to be commended,” he says. “It is clear, and it is crisp. It is easy to follow and the company has the wherewithal and the experience to supply consumers. It really is very positive at a very negative time.”