Poor benefit least from Europe power deregulation

By Eva Sohlman

STOCKHOLM (Reuters): Europe's power prices are plummeting but try telling that to the continent's poor.

The irony is that the better off are the preferred target for energy companies able to offer lower prices as the fruit of competition in a liberalized market.

"Poorer people don't benefit as much from the deregulation as the middle class because of poor information and less favorable offers," Richard Hunt, spokesman at Britain's energy regulator Ofgem, told Reuters.

Power companies target wealthier households by offering cheaper electricity in combination with other services and products that poorer people find difficult to afford.

"These offers enable them to cut prices to a larger extent," he said.

In Britain, one of the first countries in the European Union to liberalize its power market, about five million households out of 20 million are classified as suffering from so-called fuel poverty.

Fuel poverty means having to spend 10 percent or more of your income to heat your home.

In addition, fuel poverty can also mean ill-health and an estimated 30,000 people dying of cold each year, British government estimates show.

Similar problems with fuel poverty have also been found in Sweden, which started to open up its power market in 1996 and gave customers the right in 1999 to negotiate power prices and swap distributors to get cheaper power.

A survey by polling group Sifo showed less than a quarter of the Swedish population had used their negotiating rights and Swedish power distribution firm Elbolaget said the survey showed the poorest were the least active.

"I think one of the reasons could be that poorer people might be less informed because they can't afford to pay for a newspaper for example," said Elbolaget Chief Executive Annette Brodin.

The lack of an advisory body in the market was another reason why clients were badly informed, she said.

Sylvia Lindell, lawyer at the Swedish National Board for Consumer Policies, said the inequalities were especially noticeable when comparing cost-cutting for houses and flats.

Flat-dwellers can only save about 100-200 crowns (US$11-23) per year while people living in houses can save several thousand crowns.

The small savings available to people living in flats accounts for the lack of interest, especially when you take into account how complicated and time-consuming it is to find the best deal from dozens of offers -- not only in power, but also in banking, insurance and telephone calls, she said.

"It's a jungle of offers out there following deregulation. No wonder people don't have the energy to engage in getting the best deal," Lindell told Reuters.

In Britain poorer people have been prevented from getting a fairer "power deal" for different reasons.

"A lot of people who are vulnerable don't have a bank account and have to pay via pre-payment meters, which is a more expensive way of paying as it is more costly to provide this service," said Ofgem's Hunt.

Poorer people also tended to pay more for their power because of poor housing and bad insulation.

"They are actually paying more to heat up their homes," he said.

Other reasons they did not get better deals were that many were "debt-locked" to power firms, and so unable to switch distributors, or were less informed, he said.

"Communication is a big issue that we hope to address but we don't know how to yet," he said.

Ofgem is already tackling the problem of power for the poor through its regulations for electricity and gas suppliers.

To get a supplier's license, distributors must provide energy efficiency advice, accept payment by cash or cheque on a twice- monthly basis, ensure customers receive adequate information and incorporate equal obligations towards clients.

It is not only Ofgem that has started to target the poor.

The government has initiated a drive to grant up to 2,000 pounds ($3,000) per household to improve energy efficiency in pensioners' houses. Gas pipeline operator Transco is backing a scheme to install heating systems in one million local authority homes.

In addition, some power suppliers seem to have taken the message to heart.

Last month, TXU Europe, part of energy group TXU Corp, launched a scheme to provide cheaper electricity and gas to low- income and disadvantaged households in Britain.

Sweden's Elbolaget stresses a company's responsibility towards its clients, especially for suppliers of electricity or water.

"As a firm providing electricity, you have to take extra responsibility towards clients as it has such an enormous impact on our lives," Brodin said.