The UK energy regulator’s primary duty, redefined by the Utilities Act 2000, is to protect the interests of consumers, "wherever appropriate by promoting effective competition.” Choice of supplier for residential energy consumers was introduced between 1996 and 1999, and in April 2002 the regulator removed all ex ante constraints on prices in these markets, even though incumbents continue to supply more than 60% of consumers. This paper extends earlier work to analyse changes in consumer attitudes and behaviour in the early days of the competitive market. The nature and extent of market power retained by incumbents, and the size and distribution of consumer benefits from deregulation are estimated. This in turn enables assessment of how far the regulator’s programme of promoting competition has indeed protected the interests of consumers.

Consumer choice is increasingly recognised as a crucial factor in industrial policy. To illustrate the implications of such choice we present an investment model of the switching choice in the UK residential natural gas market and examine responses to a specially commissioned survey of nearly seven hundred consumers, identifying search and switching costs. Through an assessment of the savings which consumers say they require to switch supplier, together with an evaluation of consumer switching behaviour, we deduce that the incumbent retains considerable market power, suggesting that some continued regulation may be necessary.