Cost Efficiency and Customer Service Performance in the UK Electricity Supply Industry

By Dr. Richard Hern and James Grayburn

The Situation

SSE plc commissioned NERA Economic Consulting to consider the comparative effect of public and private ownership on cost efficiency and customer service performance in the electricity supply industry (ESI), with a focus on electricity networks. The resulting study examined the performance of the UK ESI since privatisation in the early 1990s, as well as international evidence, including case studies for Australia and Germany.

NERA's Role

The evidence, as demonstrated in NERA’s report, shows that there has been substantive and continued improvement in cost and customer service performance by UK electricity networks in the period since privatisation. For example, operating expenditure per customer declined by around 5% per year from 1990 to the present day. Over the same period, the average number of interruptions to electricity customers declined from around 123 to 46 per year. Likewise, the evidence from Australia and Germany, where we can compare the performance of both private and state-owned companies, shows that private-owned networks are more cost-efficient and deliver higher levels of customer service.

The Result

The study concludes that if the objective is an electricity system that delivers enhanced services for customers and investment to deliver a decarbonised energy sector in the most efficient way possible, the objective is most likely to be achieved through private provision subject to independent economic regulation.

NERA's report was referenced in an article in the Financial Times.