Leading energy supplier Scottish & Southern (SSE) is going to cut gas and electricity bills for its customers but has not decided by how much.  It has written to seven million people telling them their charges will be reduced in the next few months. The impending cut has been prompted by a fall in wholesale gas prices which have been dropping since last summer.  “We do believe we are seeing a sustained fall in wholesale prices” said a spokesman.  SSE, which trades as Southern Electric, SWALEC, Scottish Hydro Electric, and Atlantic Electric & Gas, last raised its prices earlier this month. Its electricity prices went up by 9.4% and its gas prices by 12.2%. That was after two other increases in 2006.  If the reduction goes ahead, it will be the company’s first price cut for six years.  “We are working through the details, but we are going to give the customers reassurance” said the spokesman. Last year British Gas, still the largest energy supplier in the UK, said it would cut prices sometime this spring, once it was sure the fall in wholesale prices would be sustained. Paul Green, from online switching service Energyhelpline.com, said: “I’ve been speaking to all the other suppliers everyone else is waiting to see what British Gas does.”  Mr Green predicts that British Gas will announce its price cuts when it publishes its interim profits on 22 February.  And that, in turn, will see a flurry of announcements from other energy suppliers in the last week of February and the first week of March.  They won’t make a firm commitment until they see the size of BG’s cuts so they can still try to undercut them,” he said. On Tuesday Npower announced a price cut of 6% - but only for new customers who sign up for one of its online tariffs. The regulator Ofgem has already issued a public warning to gas and electricity retailers that they will face official sanctions if they fail to pass on wholesale reductions to their customers.

Scottish & Southern Energy says it is to cut prices for the first time in six years.  The group, which supplies energy as Southern Electric, Swalec, Scottish Hydro Electric and Atlantic Electric and Gas, expects to cut gas and electricity tariffs within the “next few months”.  The firm currently has seven million domestic customers; it increased its prices at the start of January, when electricity bills rose by an average of 9.4% and gas by 12.2%.  The move, announced in September, came about because of three years of sustained wholesale price hikes.  “Since last September, we have made clear our intention to cut gas and electricity if there was a sustained fall in wholesale prices which would allow us to do so,” said director Alistair Phillips-Davies.  “I am very pleased that we have now been able to confirm this.  “We are now monitoring costs and evaluating how we will be able to pass savings on to customers.”  Warm weather and increased imports from overseas have seen wholesale prices more than halve since the summer.  British Gas owner Centrica recently pledged to cut prices in the spring after seeing nearly one million customers leave the firm in the wake of price rises last year.

Scottish and Southern Energy said on Wednesday it would cut gas and electricity prices for its 7 million customers, the first cut in six years.  “We are now monitoring costs and evaluating how we will be able to pass savings on to customers,” said SSE’s energy supply director Alistair Phillips-Davies. “I hope we will see a sustained downward trend in the prices paid by our customers.”   British Gas owner Centrica said in December it would cut household prices for gas and electricity this spring, in an attempt to keep customers after losing nearly a million last year. Comparison website Energyhelpline.com said energy suppliers were too slow in passing on the benefits of lower wholesale gas prices to customers, urging them to switch suppliers.  “Wholesale prices have fallen by 50 percent over the six months and further falls of about 20 percent are expected this year, but so far no one from the energy companies has put an exact figure on how much they will cut prices by,” said Energyhelpline’s Paul Green.

Daily Mirror 31 January 2007:

Darren George faced a massive £2,000 increase in his gas bill each year until Your Money stepped in.  We persuaded his energy supplier to cancel his contract and put him back on to a lower rate.  The chip-shop owner from Sheffield was tricked into switching his gas supplier to a deal costing twice as much.  Darren was called by “Ruby” from Energy Assure last year.  She told him they could put him onto a much better gas deal.  He asked her for details in writing but heard nothing until he received a shocking letter on January 15.

“It was an invoice from Elf Business Energy for gas at a rate of 4.2p per Kwh. My existing Powergen rate was only 2.03p per Kwh so I worked out the new deal would cost me around £2,000 extra,” stormed Darren.  “I never gave them permission to switch me, they just went ahead and did so. I’m fuming.”  When Darren contacted Elf to say he had been tricked into a four year deal with them, they told him that there was nothing they could do.  They said he had agreed to a telephone contract which is binding. 

But after Your Money intervened, Elf backed down and ripped up his contract.  Andrew Hogg of Elf Business Energy said: “We recognise that the customer is unhappy and are working to restore the contract with his previous supplier.”  Meanwhile, Nick Sandham of Powergen said: “We will ensure that Mr George is able to transfer back to Powergen as quickly as possible.”  But Simon Howarth, boss of the switching company Energy Assure, denied that Darren had been tricked into changing suppliers.  Darren disputes Energy Assure’s version of events. Howarth’s answer? “Sometimes customers suffer from memory loss.”

Stephen Alambritis of the Federation of Small Businesses said it was a common complaint.  He warned Britain’s 4.2 million small businesses to be on their guard to avoid being tricked in the same way.  “Rogue switching agents prey on the fact that small businesses have a busy workload,” he said.  “They trick people into these telephone contracts.”  Energy Assure’s Howarth said he had no sympathy with businesses which claimed to have been tricked on the phone because they were busy.  “It’s the customer’s fault,” he told us.

He added that Energy Assure no longer sold gas or electricity and that Ruby, the salesperson who dealt with Darren George had since left the company.  Elf blamed the problem on “miscommunication”. But Andrew Hogg added: “We provide our agents with clear guidelines on contract sales. Any departures from these guidelines are taken very seriously and we have taken this case up with the agent in question.”  Tens of thousands of businesses are being targeted by rogue energy salespeople, according to Energywatch.

With small firms spending £2.3billion a year on energy it’s big business.  The watchdog said that 125 businesses had complained about marketing tactics in the past six months but the figures were “just a small indication of a bigger picture.”  Energywatch’s Karl Brookes warned: “Companies don’t have the same protection as consumers and Darren George’s case highlights the loopholes that some rogue agents will continue to exploit.  The dodgy switchers use phrases such as “Shall we continue?” to trick small companies into agreeing a telephone contract.  And before they know it, small firms have been switched to another energy supplier often with more expensive bills.

The scandal came to light following Your Money’s exposure last week of the dodgy tactics used by energy salespeople to sell contracts to home users.  After we intervened NPower admitted persuading widow Jean Cox to ditch British Gas even though her power bill would have soared by a quarter.  Now it’s clear that small businesses are even more likely to become victims as they have less legal protection than domestic users.

The problem is set to escalate, says Energywatch. As well as having no cooling-off period where firms are legally bound to a contract as soon as they agree, even if that is over the phone firms have to stay with suppliers for a minimum of a year.  If they are tricked into a long-term contract like Darren George, they could be tied to an expensive deal for up to five years.  Energywatch has linked with the Federation of Small Businesses to provide practical guidance to firms about energy matters, including how to handle sales calls from energy suppliers. Go to www.smallbusinessenergy.org.uk for information or for advice on switching, go to www.energywatch.org.uk or call 0845 906 0708. 

US Electricity costs predicted to double in next 25 years, thats what a report to be released today says the cost of electricity could double by 2030.  The Energy Supply Association (ESA) commissioned the research that found a 30 per cent cut in greenhouse gas emissions in the next 25 years would mean power would become twice as expensive.  ESA chief executive Brad Page says it would cost between $35 billion and $75 billion. What you need to do is have the widest ranges of technologies available if you want to do it in a least cost manner,” he said.  “For example, least cost will actually come about by having nuclear and advanced carbon capture and storage available.  “Each time you remove one of these options you actually find that the cost of meeting these deep emission cuts goes up and in some cases very significantly.”

Centrica, the country’s largest energy supplier, has widened its search for gas to Norwegian waters, as Britain’s North Sea gas supplies dwindle, the company said on Tuesday.  The Norwegian government has granted British Gas’ parent company operatorship of three gas exploration licenses and a smaller stake in another, at a time when UK gas output is in constant decline and Norwegian exports to Britain are on the up. “Participation in the Norwegian sector broadens our approach to securing future supplies for our British Gas customers,” Centrica Energy managing director Jake Ulrich said. “We are pleased with this award and now look forward to progressing future opportunities in Norway.” The licenses include two fields provisionally named after 1970s English glam rockers T-Rex and Marc Bolan.  Centrica has been awarded 40 percent operatorship shares in Block 8/7 of the Northern North Sea, Block 6506/12 in the Norwegian Sea and Block6506/9 of the Norwegian Sea. It has also been granted a 30 percent share of Block 35/8 in the North Sea, the company said in a statement.

Ofgem, resposible for overseeing gas and electricity prices throughout the UK, has called for an end to the Renewables Obligation the government’s support mechanism for renewable power. Ofgem says that the system is unfair to the consumer, renewable power generators are receiving an over-generous subsidy under the Renewable Obligation (RO), while electricity customers can be landed with higher bills. The way the RO operates means that customers end up paying even if renewable generation doesn’t get built, for example, if projects are delayed by planning problems, which is frequently the case.  The RO also fails to link the level of support to the price of electricity or the price of carbon emission allowances under the European Union Emissions Trading Scheme. So existing and future renewable generators will benefit, at customers’ expense, from much higher electricity prices.  It says that the cost of saving one tonne of carbon dioxide under the RO is £184-£481 , compared to £12-70 under the EU Emissions Trading Scheme.  Ofgem chief executive Alistair Buchanan said: “We think that a review of the scheme could provide more carbon reductions and promote renewable generation at a lower cost to customers, who are already facing higher energy bills.”  But the British Wind Energy Association, who’s members are supported substantially by RO payments, has accused the regulator of forcing prices up by failing to prioritise work on the national electricity grid which would allow more renewable capacity to come on line.  Maria McCaffery, BWEA chief executive, said: “The problem is not the Renewable Obligation mechanism, which is delivering many times the build rate ever achieved before. The fact that delivery is still not enough and ROC prices are a little high is partly because Ofgem themselves have failed to prioritise issues of grid reinforcement and access which have slowed the ability of the industry to deliver.”  McCaffery added: “We all need to be very careful about jumping to conclusions at a time when we urgently need stability in the market place – both to enable delivery of wind energy projects which are required to meet the Government’s 10% renewable energy target by 2010, but crucially to maintain investor confidence in a UK market which now only represents 5% of the global wind energy industry.”   Previously the RO has attracted criticism for failing to provide support to all technologies, as utilities have opted for wind power, because it is the cheapest renewable electricity source.

Since the start of 2007, the amount of talk on the political grapevine concerning Gazprom and its UK ambitions appears to have risen several notches. The state-owned Russian gas giant’s interest in Centrica, the parent company of British Gas, is long-standing and well documented. It is said, however, that Gazprom may be considering switching its attentions to National Grid, the owner of Britain’s gas and electricity transmission networks. A tilt at National Grid would be in a different league altogether from a takeover of Centrica. It would probably cost the Russians £35bn, including the £10bn of debt on National Grid’s books, but Gazprom is one of the few companies that could swallow such a large mouthful without getting indigestion. It would also be a logical fit. Gazprom has made no secret of its desire to buy European energy distribution assets, partly as a hedge against its volatile gas production business and partly to secure better access to markets outside Russia. In that respect, the UK is one of the few countries genuinely open to a foreign investor. It would also position the Russians to supply the European market from the west as well as the east. National Grid is the majority shareholder in the huge Isle of Grain liquefied natural gas import terminal. In a couple of years’ time, the UK will have more gas storage and import capacity than it has demand for gas, making it an attractive base for exports to the Continent.  The track record of the National Grid management suggests they would be open to a bid at the right price. The chairman, Sir John Parker, has sold every large company he has run most recently flogging P&O to the government of Dubai while the new chief executive Steve Holliday is a graduate of the Exxon-Mobil “everything has its price” school of business.  The political terrain is less certain. Whereas a Gazprom bid for Centrica would raise major competition concerns by pairing the world’s biggest gas producer with the UK’s dominant gas supplier, a Gazprom/Grid tie-up would pose few obvious complications.  It would, however, raise serious questions concerning the UK national interest. The Government surrendered its golden share in National Grid some years ago so it could not automatically block a bid from Gazprom, or another suitor such as a private-equity consortium. But there are provisions in the Enterprise Act which would allow it to refer any takeover on national interest grounds. The idea of Britain’s energy grids being owned by what is in effect an arm of the Kremlin would surely fit the bill.  There would also be problems in the US, where Gazprom would almost certainly not be allowed to retain ownership of the three big American energy companies National Grid has acquired over the years NEES, Niagra Mohawk and Keyspan. The thought of a national asset like the Grid falling into foreign hands would have seemed intolerable not so long ago. But that was before the ownership of Britain’s airports and ports went overseas. Even now, the idea that the Russian state would be allowed to take over a strategic asset such as the UK’s gas and electricity networks sounds fantastical.

July 1, 2007 is the deadline for European Union member states to comply with the second phase of European energy liberalization. However, with many countries likely to fall well short of the required standard, the final phase of energy market liberalization in the EU will precipitate a new of era of European Commission activism in the energy sector.  According to the terms of the EU’s Second Gas and Electricity Directives, by July 1, 2007, all retail customers in Europe are supposed to be able to freely choose their gas and power supplier, as they can in the UK. However, it is expected that, by July, many EU member states will have either failed to properly transpose the directives into national laws, or will simply be implementing these laws ineffectually.  Unfortunately, the options for the EU, or EU citizens, to take a member state to task for these failures are limited, even though it is possible for the EU, or indeed an EU citizen, to take legal action against member states in the European Court of Justice. Due to the long timelines involved, instigating legal action is an ineffective option to ensure compliance with the directives in the short term.  Individual citizens may undertake legal action, effectively suing for personal damages due to their country’s failure to implement the directives. This is unlikely though, as continental societies are less litigious than either their US or British counterparts, and their civil legal systems provide less incentive to undertake litigation.   Consequently, it looks likely that the onus for ensuring Europe’s energy markets operate effectively will fall to the European Commission (EC) and, in particular, the Competition Directorate General (DG).  This year’s liberalization deadline coincides with the culmination of the energy sector inquiry launched in 2005 by the Competition DG, and it will pass just months before the EC releases a strategic plan, and perhaps Third Gas and Electricity Directive, to resolve continuing problems.  The legislative difficulties faced by the EU will push the onus for ensuring effective competition and energy market liberalization onto the Competition DG. This department will step up investigations and enforcement proceedings against Europe’s large, vertically-integrated energy companies, based primarily in France and Germany. The EC has already stated its intention to get tough on these vertically-integrated ‘national champions’ by ensuring a clear separation, or unbundling, between the company’s generation and distribution assets.

Insufficient enforcement of transmission and distribution unbundling can lead to cross-subsidization to distribution company’s retail arms, as well as network access discrimination against new retail market entrants. The EU remains committed to energy market liberalization, convinced that Europe’s consumers will stand to gain through lower gas and electricity prices. However, the probable failure of liberalization deadlines to be met this July means that an inevitable confrontation will be created between the Competition DG and Europe’s largest energy utilities. Competition law will be used to push liberalization further than contemplated by the directives. Even if the gas and electricity directives are fully implemented and complied with by July, if European consumers are still harmed by anti-competitive behavior then the Competition DG may push the industry much further than the legal and functional unbundling envisioned by the EU directives. Potential Competition DG actions are much quicker and tougher than the EU-member state censure processes. All signs point to the Competition DG adopting a tough, activist stance with respect to market liberalization: in May 2006, the Competition DG investigated seven energy companies in six countries as a part of antitrust investigations focused on potential collusion and abuse of market dominance, and it has also indicated that it will be stricter in its review and approval of energy sector mergers and acquisitions. Compliance with the EU directives is expected to be pushed from the governmental to corporate level.

If the Competition DG becomes very involved in enforcing the Gas and Electricity Directives, then energy market liberalization will happen piecemeal, one company at a time, through a procession of costly legal battles.  

According to UK comparison service provider MoneyExpert.com’s new Switching Index, which tracks the nation’s switching habits on a quarterly basis, British consumer apathy is on the wane, with half of the adult population having chosen to switch providers of services such as bank accounts, energy and broadband internet in the past six months.
The tracker shows that, in the last half of 2006, around 39 million products and services were switched in favor of a better deal. Around 212,000 contracts changed hands each day over the last six months of 2006, across the utilities, financial services, telecoms and mortgage products markets.  Of all products and services, gas and electricity suppliers were the most popular choice to switch, thanks to rising prices in the final six months of 2006, with approximately one in seven households changing one or both utility bills. “No provider is safe from the axe if they dont have a competitive product or good customer service. Customers aren’t shirking from moving on if they’re not happy,” said Sean Gardner, chief executive of MoneyExpert.com. “That is no truer than with utilities, where customers have been switching in their droves to ensure they keep rising costs down as much as possible.”  The tracker service also offers consumers the opportunity to review a product’s price and features, as well as the level of service offered by the provider, to enable them to make a more informed choice.