Reporting a 44 per cent rise in first-quarter profits, Frank Chapman, the chief executive of BG Group, warned yesterday that gas prices in the UK would continue to rise as the country runs out of its own supplies.Reporting a 44 per cent rise in first-quarter profits, Frank Chapman, the chief executive of BG Group, warned yesterday that gas prices in the UK would continue to rise as the country runs out of its own supplies. “Customers have enjoyed low gas prices in the UK thanks to the reserves in the North Sea and the liberalised market here. These have delivered much better prices than our European counterparts have had,” Mr Chapman said. “But UK reserves are going down and there will be upward pressure on prices from now on. There is no longer a surplus of reserves and we will have to import gas from much further afield. The reality of bringing in gas from overseas means it costs more, which will put pressure on prices.” The group said it raised gas prices by an average of 9 per cent around the world over the first three months of 2005, helping to lift operating profits in its exploration and production division by 47 per cent to £387m. Its figures were announced one day after Centrica, the former retail arm of BG, told its customers to expect higher gas bills as a result of higher wholesale gas prices. But Mr Chapman said UK customers should still expect a fair price for their utilities. “The deregulated market for gas in the UK means competition will ensure customers get the lowest feasible price. Companies are also spending a lot of money investing in new sources of supply,” he said. Liquefied natural gas (LNG), for example, is proving to be one of its most successful new investments. The group saw profits from its LNG division, which cools gas into a liquid to ship around the world, rise 80 per cent to £27m. BG’s profits were also boosted by an increase in production and higher oil prices. Exports from the group’s operations in the giant Karachaganak oil and gas field in north-west Kazakhstan and production rises in the Scarab Saffron gas fields in Egypt helped BG boost volumes by 7 per cent to 43.7 million barrels of oil equivalent. It produced its first gas from the Simian Sienna fields in Egypt for export, while the Rosetta field produced its first gas for the Egyptian domestic market. BG also benefited from higher oil prices over the first quarter, with the average price of a barrel of oil up 48 per cent to $48.24 against the same period last year.

It’s not just about the price!

Business electricity and gas suppliers are offering moderate and medium sized business consumers a bad deal by hiding behind the contract small imprint. Price is the driving factor when negotiating a new business electricity or gas deal but don’t fall into the commodity trap as suppliers will catch you out. Business Electricity and Gas suppliers in the UK are hiding behind the supply agree small print to the detriment of their customers. Supply contracts for small and middling sized business electricity and gas customers are heavily weighted in favour of the supplier as many of the contract terms mystical in the small print are very ambiguous and will undoubtedly win the consumer out if they are not explained before they agree to the contract. Hidden in the small print is information about the cancellation clauses, price variability conditions, advanced termination timescales and how long the contract lasts for. These clauses are crucially important when a traffic customer takes out a contract or switches electricity or gas provider. One of the most important questions the customer needs to ask before they agree to the business energy contract is how long the price is fixed for and what type of contract is being offered? Most business electricity and gas supply contracts for small and medium sized business customers in the UK are “evergreen”, which means that the contract will continually recreate unless the customer serves conclusion a specified number of days before the fixed excellence term renewal date. This price term is a very important factor. What should happen is that the pursuit electricity or gas supplier should write out to the customer a certain period of time before the price deal expires and them a new deal for a future contract term. This sounds reasonable but the business energy recommencement notice in many instances is disguised to look like junk mail so that the client does not act on the information and just files it, only realising that their pursuit electricity or gas costs have significantly increased when they receive their next bill. They in turn call their business energy supplier who then informs them that their contract automatically renewed because they did not hear back from them in time. A number of customers are also reporting that they did not even receive the renewal price notice before their business electricity or gas contract was renewed, but most suppliers “deem accepting of the notice being received by the client on it being sent by the supplier”. When the customer queries this very onerous article the supplier usually presents a print out from their computer screen showing a date when the cognizance was sent by their mailing department. This does little to appease the client when they did not receive it, it begs the question why the business electricity or gas supplier does not contiguity the client to make sure they received their renewal notice safely. Although the contract price is the “carrot” when negotiating a new profession energy agreement please ask the company the following questions before agreeing to sign up:

1. How long is my business electricity or gas price fixed for?
2. What type of contract am I being offered, is it an evergreen contract that will assume renewal if I do not serve limit?
3. How many days termination notice do I have to give you before my fixed price expiry date?
4. What method do you use to offer me renewal prices prior to the end of my fixed price expiry date - post, email or telephone?
5. Can I cancel the contract mid term and how much will it cost?

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National Grid has had to call on Britain’s struggling power stations to increase output for the fourth time this month as spot gas prices soared to 62p a therm a level not seen since March 2006 and a jump of about 40 per cent on prices last month. National Grid asked generators three times yesterday alone to supply more power and put them on notice to provide an additional 1,900 megawatts enough to power 1.9 million homes for today, as cold weather sweeps the country. The warnings came because the safety margin of available electricity was about a third lower than it should be. The grid needs a comfort zone of between 2,000MW and 4,000MW available above peak demand. The notification of inadequate system margin (NISM) is calling for 1,300MW to 1,700MW more. Usually between eight and ten NISMs are issued each year, but sources in the electricity market have noted that there have been four since last month, despite the weather being reasonably warm. The problems have been exacerbated because three of the country’s eight nuclear reactors, which provide a fifth of the UK’s electricity, have been shut down. A spokesman for National Grid said that there was no cause for alarm. “This is one of the tools we use to get information to the market, to make sure that enough capacity is available,” he said. A spokesman for Ofgem said that this was a normal procedure to encourage more generating capacity back on-line. “We have a comfortable safety margin this winter of around 20 per cent,” he said. Concerns over capacity have led to spikes in the gas price recently and industrial users are bracing themselves for a difficult winter. Retail consumers also learnt yesterday that there was little chance of price cuts as suppliers are wary of high forward prices for the coming months.

THE lights could literally go out on any future development in Aylesbury as the town does not have sufficient electricity capacity to deal with the proposed growth, the network provider for the town has warned. EDF Energy has advised Aylesbury Vale District Council there is currently insufficient capacity for all the new building work in the town including the Waterside and Berryfields developments. A major upgrade costing £5 million is needed to sustain the proposed building work beyond 2009 but it is currently unclear who will pay. Cllr Carole Paternoster, cabinet member for strategic planning said usually in cases such as these the developers get together and form a consortium and a lead developer takes charge of paying the money and recovering the cost from the other developers. However, if no developer steps forward to pay for the electrical improvements, the cost will fall on the first one who starts building in the town. Cllr Carole Paternoster, cabinet member for strategic planning said: “This is something we have got to get sorted out as it could hold up all the proposed development in Aylesbury.” EDF Energy are not required to pay for the upgrade and the Government have showed no indications that they are prepared to fund the improvements. Rebecca Hopkinson, Press Officer EDF Energy said: “EDF Energy Networks managers met representatives of Aylesbury Vale District Council on July 17 to discuss future housing development in the area and the necessary provision of associated electricity infrastructure to accommodate this growth. “The regulatory framework under which we operate would normally result in such works being chargeable directly to the developers. A letter was sent to senior management at the council on July 20, following the meeting, to offer further support and advice as this development progresses. We shall continue to liaise directly with the council.” AVDC councillors discussed the issue at a cabinet meeting last week and have agreed to spend £50,000 on finding a way of solving the electrical supply crisis. Sir Beville Stanier, speaking at the cabinet meeting said: “This is something that could throw the whole expansion of Aylesbury off the rails. It needs to be looked at the highest level and urgently.” John Cartwright, leader of the council said: “I am horrified about the electricity provision. The Government is turning its back on us.”

U.K. power for delivery in September rose as the cost of natural gas increased. Electricity for the next working day was unchanged, maintaining a premium over corresponding prices in France. U.K. power for delivery in September increased 2.3 percent to 26.50 pounds ($53.72) a megawatt-hour, according to prices on Bloomberg from the broker GFI Group Inc. The contract traded at a record-high 26.75 pounds a megawatt-hour on July 23. Electricity gained as the corresponding price for gas advanced. Gas for September delivery gained 4.9 percent to a record 30.1 pence a therm, according to prices from the energy broker Spectron Group Plc. The higher gas cost may make generation more expensive for operators of gas-fired plants, which produce about 40 percent of Britain’s power. Electricity for the next working day was unchanged from the last price on July 27 for electricity delivered today, trading at 25 pounds a megawatt-hour. The equivalent contract for power delivered in France traded at 25.25 euros ($34.50) a megawatt-hour. France is connected to England by a 2,000-megawatt subsea cable, which enables traders to take advantage of price differences between the two countries. The U.K.’s price premium over France suggests that Britain will import power via the cable tomorrow. Britain was scheduled to import power from France at maximum capacity for most of today, according to information on a Web site run by RTE France, the power-transmission unit of Electricite de France SA. “Technical investigations are still ongoing'’ regarding a reduction in available capacity for exports from the U.K. to France on the cable, Gemma Stokes, a spokeswoman for National Grid Plc, said today in a telephone interview.

U.K. electricity for delivery a day ahead gained, boosting profit for operators of plants that burn natural gas, the fuel for about 40 percent of Britain’s power generation. Baseload electricity for next-day delivery rose as much as 4.2 percent to 28.65 pounds a megawatt-hour, according to prices on Bloomberg from the energy broker Spectron Group Plc. It traded at 28 pounds a megawatt hour at 8:52 a.m. in London. Baseload power is delivered around the clock.

Britain’s public sector is to start buying electricity on a day-to-day basis on the spot market, under a new deal with EDF Energy, as government tries to cut energy costs by taking risks. The deal with EDF Energy, worth around 1 billion pounds over the next four years, also guarantees about a third of the electricity from renewable sources until at least 2011. Soaring energy prices in the few years until last autumn and increased demand for flexible supplies has generated growing governmental interest in playing the spot market, rather than through long-term contracts, despite greater price volatility. “Now quite a number of public sector customers are willing to take the additional risk of going into the day-ahead market,” Steve Griffin, senior customer services manager at the Office of Government Commerce’s (OGC) buying arm said. “It’s probably come more to the fore in the last year or two. We are now seeing a greater interest from the smaller customers,” he said. Some of Britain’s biggest public-sector consumers, like the National Health Service, already buy a portion of their power on the day-ahead market, which OGCbuying.solutions (OGCBS) says has delivered savings of about 8 per cent, compared to month-ahead power purchasing, over the last two years. By acting as one buyer through the OGCBS, smaller public sector bodies will for the first time be able to use the spot market. “Historically we have aggregated the total volume together, but we have always bought forward because public sector customers like a fixed price,” Griffin said. “I think you have seen the market change over the last couple of years. The interest in day-ahead is growing significantly.” Higher energy prices in recent years as Britain’s gas output has dwindled have had prompted more public bodies to look for ways to keep their costs down. But although prices have declined since last autumn as British gas supply has been boosted by new imports, interest in dabbling in the spot market is strong as forward prices have fallen less markedly. “I think higher prices have had a psychological effect, to say the least. People wanted to keep their costs down,” Griffin said. “But even now that the market is obviously falling, buying day-ahead can still offer financial benefits versus buying on the forward market.” Under the deal with the UK arm of France’s EDF, OGCBS will aggregate the total volume of power that the public sector wants to buy and EDF will then buy for and supply it to them. UK government bodies consume about 3 terawatt hours of electricity a year, at a cost of 200-250 million pounds, and the new deal guarantees a third of that will come from renewable sources at no extra cost. The EDF contract includes site assessments for renewable onsite generation, energy efficiency programmes and a carbon off-setting option which allows customers to buy certified carbon emissions reduction certificates, OGC said in a statement on Monday. As part of British efforts to fight climate change, central government departments are required to source at least 10 per cent of their electricity from renewable sources by March 2008.

U.K. month ahead electricty price climbs as the cost of natural gas increases. U.K. electricity for delivery next month increased as the cost of natural gas rose and the day ahead power price gained. Baseload power for June advanced 1.9 percent to 24.25 pounds ($47.83) a megawatt-hour, according to prices on Bloomberg from the energy broker GFI Group Inc. Baseload electricity is delivered around the clock.

It seems a little odd to let the largely foreign-owned energy companies reward their loyal British business customers with rip-off prices and then, when they have the temerity to find an alternative supplier, give these companies a second chance to try to win back their customers? But this is exactly what Ofgem, the energy regulator, now does. Last month, the regulator cleared British Gas Business from abusing the formal customer switching process. The company had used the notification that it receives from rival suppliers that a customer wants to switch to trigger a final sales call with a lower offer. Its rivals are up in arms over Ofgem’s decision. The regulator admits that many are now considering following British Gas’ lead while others are threatening to take small businesses to court for breach of contract. The problem here is not, as Ofgem suggests, that small businesses end up being offered a lower price for their electricity and gas (why doesn’t British Gas offer a competitive rate in the first place?) Rather it is the impact this daft rule has on competition. Electricity4business, one small supplier trying to break into the market by offering low prices it has about 1% says it is losing £3m of “win-back” business each month because business customers are changing their minds after agreeing a contract. Another supplier, called BizzEnergy, was so concerned by this that it lodged the formal complaint that prompted Ofgem to get involved in the first place. Small businesses, unaware that they lack the protections extended to domestic consumers, may also feel slightly disheartened that thanks to British Gas they may face legal action from the supplier they have just spurned for breach of contract. The industry has censored British Gas as part of the industry’s self-regulatory role. But British Gas appealed this decision to Ofgem, the energy regulator, which admitted that the rules, as they stand, were not very clear on the matter. But for a regulator whose mantra is to “promote choice and value”, Ofgem is doing a pretty good job of sticking its head in the sand. Its response a review of the rules appears half-hearted at best. Behind the scenes, officials say the industry should sort it all out. After all, the market for the supply of electricity and gas to Britain’s small businesses is highly competitive. The figures do not appear to support this view. The six biggest suppliers control 96% of the market - suggesting an oligopoly. Naturally, this concentration of power is not encouraging good practice. Why, for instance, are 600,000 of the 1.7m businesses with electricity contracts - these are Electricity4business estimates - on hugely uncompetitive 28-day rates rather than more competitive fixed-term contracts? These businesses have not switched supplier since the deregulation of Britain’s electricity market in 1999, illustrating that small businesses are not always sophisticated buyers of goods and services. These businesses are throwing hundreds if not thousands of pounds away each year by not shopping around. Organisations such as the Federation of Small Businesses and Energywatch, the consumer body, are trying to raise awareness of the options. But they admit little progress has been made and are calling for more protection of small business customers. But is more regulation really what is needed here? Surely, nationwide awareness campaigns and the launch of more price comparison sites, such as catalyst-commercial.co.uk, will have more impact.

But Ofgem has a responsibility to ensure the regulations that already exist do not put small businesses at a disadvantage. The issue goes beyond the loophole British Gas has discovered. For instance, why does Ofgem require the energy suppliers to send out price change letters but not contract renewal letters? As we see below, this has allowed some energy groups to present these important documents as price offers, which to a busy small business owner can come across as nothing more than junk mail.

Beware of incompetent utility companies, warns the UK’s Forum of Private Business, which said that SMEs could be left with a bill for thousands of pounds.  The Forum of Private Business (FPB) has sent a stark warning to its members that they could be left with a bill for thousands of pounds by incompetent utility companies. The FPB, which represents around 25,000 small and medium-sized firms across the UK, has taken the action after one of its members was left owing more than GBP 16,000 because Scottish Power was incorrectly estimating the business’s meter readings and then not updating their records when given accurate readings. The FPB’s senior Member Services representative, Philip Moody, said that, unless smaller businesses keep a careful eye on their meter readings, they may be left out of pocket. ‘Some energy suppliers are happy to give you a low estimate, but the danger is that, if it is inaccurate, there could be a big bill to pay in the long run.’ Moody went on to criticise the approach of the energy companies. ‘It is irresponsible to allow such practices to continue. They may not miss a black hole in their accounts of several thousand pounds, but to a smaller business that is a lot of money.’ Businesses should check at least once a quarter, if not monthly, and inform the supplier. If there is a problem, try to intervene as early as possible.