A Northern Electric + Gas case study

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Page 5: Winners and losers

Northern Electric Gas 6 Image 7The ‘no price discrimination’ rule disadvantages large, established firms that have built up a complex organisational structure.  Before they can offer attractive prices to new customers they need to reduce their overheads and slim down their organisation, because any new, low prices have to be offered to all of their customers.

British Gas was particularly affected by the new competitive gas regime. It had an added difficulty. It had entered into long term contracts to purchase gas at prices that now look too high and which prevent it from competing on price alone. To some extent, it is relying on customer inertia to maintain its customer base. By September 1999, however, five million British Gas customers had switched to other gas suppliers. An Ofgem survey in December 1999 found that 96% of customers were aware of their right to change suppliers, and that 27% had already done so.

In the first year of competition in the electricity industry, four million customers switched suppliers. An Ofgem report in June 2000 revealed that customers who moved their accounts from large, established suppliers such as Eastern Electricity and Southern Electric to some of the new entrants in the gas and electricity supply sector could typically save between £50 and £100 a year. Consumers were clear winners.

Overall in 1999, gas users saw their annual gas bill fall by between 15% and 20%. In the same period, typical electricity bills fell by 5-10%. In the battle for market share, Northern Electric has been one of the winners. Since moving from being an electricity supplier to being a dual fuel supplier, its customer base has risen by over 25%. For small and medium users of both gas and electricity, the company is in the top five of ‘best buys’ for customers looking to reduce their bills.

Northern Electric + Gas | De-regulation