OPENING THE DOMESTIC GAS MARKET — CAN CUSTOMERS BE WINNERS?

In April 1996 domestic customers in the south-west of England will, for the first time, be able to choose from competing gas suppliers. By 1998 all customers will be able to "shop-around" for gas. What are the prospects for customers benefiting from this liberalisation of the gas market? One view is that competition will produce little benefit for domestic customers. Even if new gas suppliers could find cost savings above the not insignificant costs of establishing and operating a major new commercial enterprise, price reductions to domestic customers are unlikely to be large since suppliers' costs in the domestic sector only make up a relatively small component of total costs. And because competition could expose some customers as more attractive than others, there is the prospect of losers as well as winners.

In this paper, however, we take a broader view of the impact of competition on all elements of the gas chain. We consider the prospect of lower gas prices for domestic customers being achieved through lower gas purchase costs for suppliers, compared to those faced by British Gas in recent years. Customers could also 'win' from the significant degree of innovation we anticipate from the new competing suppliers. Such innovation may also force suppliers to reassess those customers previously thought to be unattractive.