Competition failures show electricity networks in a bad light

If the electricity connections market were subjected to the same political pressure as energy supply, a competition referral would look very likely at this point. Ofgem gave incumbent monopoly providers three years to open up connection services to competition but they have proved unable or unwilling to do so in most cases.

Ofgem is considering its next steps, which could include a “review” of competition in the sector. The electricity distribution network operators (DNOs) had passed its “competition test” for less than one third of market segments identified as contestable.

In an open letter to stakeholders, the regulator said DNOs had addressed some barriers to competition and made improvements in some areas. However, it concluded: “In the majority of market segments, we have still not seen enough evidence of effective competition.”

Of course, the electricity connections market does not attract nearly as much interest or flak as retail. It bears a negligible relationship to energy bills and as such is well clear of the cost of living agenda. Worth around £1 billion a year, it is not a large enough market to excite major players.

Nonetheless, it matters to the likes of home builders and solar installers, who complain of high charges, poor service and limited choice. There are independent players who think they could offer a better deal, but say the DNOs are not doing enough to level the playing field.

And while the heat has been on energy suppliers lately, MPs on the Energy and Climate Change Committee are lining up an inquiry into the networks. Committee chair Tim Yeo in particular has a bee in his bonnet about “complacent” network monopolies. He gave the DNOs a hard time over their response to widespread power cuts caused by the Christmas storms and may be expected to take a similarly pugnacious tone on connections.

Ofgem also noted variations in the state of competition in different parts of the market. Electricity North West came out on top, having passed the competition test for seven out of nine segments, which covered 97 per cent of connections in its area. At the bottom of the table was SSE Power Distribution, which did not pass a single segment in its Scottish region and only one in its southern patch.

The regulator has made no mention of penalties for the worse performers. If it is seen to let DNOs get away with failure, Ofgem risks giving the Labour shadow energy team another opportunity to bring out its favourite “toothless watchdog” taunt.

Ofgem is due to set out its next steps in June. DNOs are unlikely to get the same rough treatment as energy suppliers, but they should be prepared to up their game.