The utilities sector in the UK consists of the privatised companies supplying gas, electricity, water and sewerage services to final consumers. This report, which contains the results of original research commissioned from National Opinion Poll (NOP), considers the main issues facing this industry. From the side of demand, the focus of the report is on the domestic, residential, market.

The largest sector of this market is the production and distribution of electricity. The other main sectors are the manufacture and distribution of gas, and the collection, purification and distribution of water.

The utilities companies supplying these services were privatised under a previous UK government and a regulatory structure put in place to safeguard the interests of the consumer. Currently, these regulatory agencies are the Office of Gas and Electricity Markets (OFGEM) and the Office of Water Services (OFWAT). The regulators seek to protect customers from the effects of monopolistic profit maximisation by setting limits to the prices that can be charged by suppliers for their services. In both the gas and electricity markets, supply to consumers is now open to competition, but in the case of water and sewerage services, a full choice of supplier has yet to be made available to customers.

In those sectors that have only recently been opened up to competitive forces, such as gas and electricity, advertising activity is well developed. In the water supply sector, advertising levels are much lower, not surprisingly in view of the lower level of competition that currently exists in that sector.

Among the choices faced by gas and electricity customers, in the domestic market, over recent years, has been whether or not to switch supplier. Opportunities have been opened up for households to purchase their gas or electricity from different suppliers, even companies that traditionally supplied a different sector. Indeed, many electricity suppliers now supply both gas and electricity and vice versa. The NOP survey commissioned by Market Assessment, has revealed some interesting differences between the various demographic groups, in their switching behaviour. Overall, the survey revealed that between a fifth and a quarter of users had changed their gas or electricity supplier, since the option became available. It also showed some significant differences between the responses of different groups within the overall population, with those in the younger age groups far less likely to have switched.

When they were monopoly suppliers, operating with objectives appropriate to nationalised industries, the gas and electricity utilities lacked the incentive to engage in the kind of marketing activity that would be normal in more competitive markets. However, since these markets have been opened up to competition beyond traditional boundaries, both geographical and product, this situation has changed. Some companies have grasped such opportunities vigorously, seeking to penetrate the markets of their competitors and enter new, unregulated markets, for instance in appliance retailing and financial services.

Since competition has been introduced more slowly in the water and sewerage services sector, than in the gas and electricity sectors, marketing activity is, in general, less developed, although some companies have adopted a strategy of expansion into non-regulated business areas.

TV and press advertising account for most advertising expenditure in the utilities sector, with far less use being made of radio and outdoor advertising and with virtually no use being made of cinema advertising.

Looking to the future, it is likely that companies in the sector will need to continue to focus on environmental concerns and to allocate substantial resources to deal with these issues, such as the need to control the level of atmospheric pollution caused by the burning of fossil fuels and to mitigate the adverse effects of the discharge of sewage waste.

It is likely that technical progress will continue to be made in this sector. This is likely to be stimulated by the need to develop means of generating electricity that are less damaging to the environment, than current methods. There will, equally, be a need to seek improved methods of treating sewage and purifying water.

In the UK, the utilities sector faces a mature market, where demand for such essential services responds only weakly to changes in demand in the economy at large. Also, over recent years, energy intensity, defined as energy consumption per unit of output, has been falling, in line with developments across much of Europe. This has been caused by the fact that energy intensive industries have been in relative decline, over the period.

For these reasons, Market Assessment predicts only moderate increases in real household consumption expenditure, on these services, over the next five years. Increases in charges over the period are also likely to be constrained, both by direct action by the regulators and by competitive pressures. Hence, it is predicted that growth in household consumption of the services provided by the UK utilities will also be modest.