Starting in 1998, the electricity market in England and Wales will be
opened up to full competition, and all consumers will be allowed to choose
their electricity supplier. This promises to result in lower prices,
but there will be additional transactions costs exceeding £100 million
a year for the first five years. Relative to a counterfactual without competition,
there are likely to be large transfers from electricity companies (and
the coal industry) to consumers, but the companies lose more than consumers
gain. This conclusion might be reversed if competitive pressure leads
to significant additional cost savings in the future.