Business Opinion:Good news for consumers. Thanks to a reduction in gas tariffs on the international markets, gas prices for domestic customers are coming down in October for the second time this year. For the same reason, electricity prices are likely to come down as well. But don't hang out the bunting. This is more a blip than a trend writes Arthur Beesley.

Consumers have endured penal increases in energy costs for years. Electricity is now almost 66 per cent more expensive than in 2001, according to the Commission for Energy Regulation, which sets prices for both forms of energy. Gas prices more than doubled in 2003-2004 and February this year, when a 10 per cent cut was introduced. When another 11 per cent comes off gas this autumn, prices will still be about 62 per cent higher than four years ago.

It's simply too easy to blame the relentless rise in global energy prices for all of that. Consumer markets for gas and electricity are controlled by the ESB and Bord Gáis Éireann, State-owned giants that enjoy quasi-monopolistic power in their respective spheres.

True, prices are set by the regulator. But if common sense doesn't tell you there's no incentive to keep prices down if there's no competition, hard experience will. Just look at Ryanair and Aer Lingus. No amount of stick-waving by a regulator will have the same impact as customers flocking to a rival for better prices.

Years after the electricity and gas markets were liberalised, there is still no competition for domestic consumers. Big industrial users can choose their supplier, but householders have virtually no choice. No matter what the regulator does, the ESB and Bord Gáis have massive pricing power. But that may be about to change - and in the most ironic of fashions. Who is about to challenge the ESB in its own back yard, you ask. None other than Bord Gáis. Yes, the gas board is going into electricity!

Come 2009 or 2010, the organisation will open a 440 megawatt power station on the site of the old Whitegate Oil refinery. Where other players have confined themselves to the industrial market, Bord Gáis says it will pursue domestic customers.

With 560,000 domestic gas users on its books and a billing system that could be adopted for a dual energy offering, Bord Gáis might well be in a position to mount a serious challenge to the ESB and steal some of its 1.9 million domestic clients.

This puts a somewhat different complexion on remarks last week by Tadhg O'Donoghue, the ESB chairman. Announcing pretax profits of €223 million for 2006, Mr O'Donoghue called on the regulator to change its pricing regime. Specifically, he said the regulator should set a maximum price for electricity instead of setting the price per se as it does at present.

Thanks to the reduction in international gas prices and a fall in the price of coal, Mr O'Donoghue said the ESB could immediately cut its tariffs by 5 per cent and cut them by as much 10 per cent in the next year. The company cannot do that, he said, because it must await the regulator's annual review of prices in November. That review is already likely to reduce prices - especially after a second reduction in gas tariffs - but the ESB wants to be able to move right away.

It sounds good, but only if you think the ESB is a cuddly beast that wouldn't trample over its rivals if given half a chance. With the threat of real competition for domestic customers now on the horizon for the first time, the flexibility to change prices at will would give the company an opportunity to drastically undercut its rivals as soon as they go into the market. Aer Lingus did the same when Ryanair entered the market.

A reduction in tariffs could be good for consumers in the short-term, but persistent and radical undercutting could also threaten a rival's long-term viability at the crucial start-up phase. A short-term burst of competition might result in no competition at all.

Bord Gáis is State-owned of course, so an expensive capital project is not going to go to the wall over a fight with the ESB. The gas company is equally likely to pursue big industrial customers, but the more viable its domestic offering the better.

Still, its foray into electricity raises all sorts of questions about the merits of liberalising an industrial sector only to see two State companies fighting for the same business.

It's hugely inefficient to say the least. But Bord Gáis is not going into electricity for the good of its health. After all, there is big money to be made.

Don't expect any reductions in its profits or those of the ESB when prices for gas and electricity go down this year. In energy markets more than most, what goes down must come up. Be warned.