Thousands of customers are poorer after the introduction of competition among electricity companies, according to a study published today.

Dominic Maclaine, a researcher from the University of Sussex, says the cost of introducing competition has totalled more than £1.6 billion while the net benefits have been no more than £650 million.

Laws which came into effect in 1998 allowed homeowners to choose for the first time who would provide their electricity.

Dr Maclaine compared how domestic consumers fared during the first four years of competition with how they might have done had competition been introduced in a different way or not at all.

He found customers in England and Wales would have been better off by up to £1 billion.

Dr Maclaine said: "The classic economic model assumes competition brings lower costs and processes than a regulated monopoly.

"Clearly, this has not been the case for electricity retail in England and Wales, where the costs of introducing competition have far outweighed the benefits for many consumers."

Dr Maclaine also found the poorest consumers, who pay by meter, had done particularly badly.

If competition had not been introduced at all but instead the price of electricity set by the regulator Ofgem they could have been almost £300 million better off.

Dr Maclaine, from the university's science and technology policy research unit, said: "Pre-payment customers have been particularly badly hit by the technological route chosen to introduce competition.

"For many customers much has been done to make it easier for them to switch supplier. However, the situation is much more complicated for pre-payment customers, many of whom did not switch in the first years of competition."

Dr Maclaine criticised energy regulator Ofgem for being too soft on companies when competition first came in.

Last year 4.2 million electricity customers changed suppliers.

Dr Maclaine said the high level of switching between electricity companies had led to an increase in costs associated with mis-selling, customer transfer problems and billing issues.

Ofgem said reports from the National Audit Office showed competition had benefited electricity customers to the tune of £750 million.

A spokesman said: "Ofgem believes the best way to protect customers' interests is to promote competition between suppliers.

"Ofgem monitors the energy markets very closely to ensure all customers are benefiting from effective competition.

"As part of this work, Ofgem has reviewed the state of retail competition in the energy markets."

The spokesman said research showed suppliers lost customers when they increased their prices, which showed competition is working.

Tuesday August 31, 2004