UK-based utilities are planning to increase prices for the second time in 2008, with possible increases of a maximum of 25% on utility bills in the summer, reported The Observer.  The news source reported that this will come as a rude shock for UK households who are yet to recover from the 15% increase, earlier in 2008. Additionally, the UK’s primary gas supplier, Norway, has warned the UK regulatory body Ofgem and government officials that the UK is not its top priority for gas exports. The Norwegian pipeline company Gassco has reportedly stated that, given its long-term supply contracts with continental European distributors, the UK cannot depend on it for gas supplies. Industry analysts estimate that with dwindling North Sea reserves, the UK will have to depend on Norway and Russia for almost 50% of its gas needs by 2010. This could reportedly undermine the UK’s energy security and push millions of British households into fuel poverty, as fuel costs rise.

RWE, the German power giant that owns npower in the UK, has tabled an £11 billion indicative cash offer for British Energy, the nuclear generator. The German giant made its approach to British Energy several weeks ago, offering 700p a share, according to sources familiar with the matter. At this price, a deal would raise almost £4 billion for the Government which is considering selling its 35 per cent stake in the company. Shares in British Energy surged 4 per cent to 730p in early trading on news of the approach. The German company, which has nuclear experience in its home turf, is now one of several European and British energy giants conducting due diligence on British Energy, although a formal auction for the nuclear group that was bailed out by the Government six years ago has yet to start. RWE’s move would put it in poll position to snap up the nuclear generator, as EDF the French energy group which has also expressed an interest, is understood to have made an approach for just part of the group. While RWE’s all cash offer for the whole group looks superficially better than EDF’s, the French giant could yet have the edge as it is understood to be considering a joint bid with Centrica, the owner of British Gas. Earlier this week, Malcolm Wicks, the Energy minister, said that the Government was mindful of the need to ensure a variety of companies were involved in the programme to build new nuclear power stations. “We wouldn’t be happy, we wouldn’t really allow just one company to have a monopoly of nuclear in Britain,” he said on a visit to his counterpart in Washington. Analysts and British power companies have expressed concerns that the purchase of British Energy by either RWE or EDF, which have large retail energy businesses in the UK, could lead to a squeeze in liquidity in the wholesale electricity market, eventually pushing up power prices for consumers. British Energy’s share price has climbed 30 per cent in the last month, but there are also concerns that the price has risen higher than the ageing power stations it owns are worth. The value in British Energy is in the sites it owns, which are the favoured locations for new nuclear power stations. However, a bid pitched between 700p and 900p, as analysts have forecast, would see the competing energy companies paying a huge premium to ensure first choice of locations for new power stations. British Energy would not comment on takeover talks today. The nuclear giant released a year-end trading update in which it said that its nuclear output for the full year to the end of March was 50.3 terawatt hours (TWh), down slightly on last year’s 51.2 TWh. The nuclear group also said the reduction in output from planned refuelling operations in the next year would increase from about to 3 TWh to about 4 TWh. “Increased refuelling losses are largely due to a slower than expected recovery to normal refuelling operations of the Dungeness B power station,” British Energy said.

U.K. gas and electricity markets regulator Ofgem will from 1st July have the power to audit utilities’ handling of customer complaints and fine companies who fail to meet new standards, the regulator said Wednesday. The new rules will apply to all complaints from domestic and small business consumers and Ofgem will carry out its first audit later this year to ensure companies are meeting them. The regulator will be able to fine companies up to 10% of their turnover for noncompliance. “I’m confident that the companies will rise to the challenge. But if they don’t, we now have the ability to take regulatory action,” Ofgem Chief Executive Alistair Buchanan said. The new rules on complaints will address some of the main frustrations of customers and the significant variations in the quality of complaint handling, Ofgem said.

Germany’s RWE and EDF of France have entered discussions with Centrica about a possible bid for British Energy, the UK’s leading nuclear generator.  The talks are at an early stage but show that the struggle for control of British Energy is gathering pace. Eon, another leading German energy company, and Iberdrola of Spain have not approached Centrica but are said to be following the situation closely. Iberdrola is itself facing a possible bid from EDF. All five companies - EDF, Eon, RWE, Iberdrola and Centrica, remain in talks with British Energy about a possible bid or other cooperation. Media reports on Friday stated that EDF had emerged as a frontrunner. Centrica, which owns British Gas, could not mount a bid on its own, because it lacks the financial firepower or nuclear record. The UK government is considering selling its 35% stake in British Energy to ease the strain on public finances. The company is an attractive asset to any business that seeks a role in the future of Britain’s nuclear industry. It controls access to many of the best sites for new reactors. EDF and RWE appear to be closest to making a full offer, which would be triggered if any company bought all of the government’s stake. EDF appears to be more advanced in its thinking. Centrica, EDF and RWE all refused to comment yesterday. For EDF or RWE, an alliance with Centrica would drape a Union flag over any bid and ease concerns about the majority of Britain’s nuclear generation capacity and skills passing into foreign hands. Centrica supplies about a tenth of the UK electricity market and is one of the biggest residential suppliers. Yet it has just 5 per cent of the country’s generation capacity and has to buy power on the wholesale markets. A merger of EDF or RWE with British Energy would create a company with more than 20% of the UK’s power generation capacity. That would heighten concerns about lack of competition and liquidity in the wholesale electricity market. If Centrica were involved, those concerns would be even stronger.  The government could still split its British Energy stake among several buyers, preventing any from taking a dominant position in the market. As well as raising cash, the government wants to encourage a huge programme of investment in nuclear power. It could jeopardise that by selling its stake to a single company.

Electricity prices could soar if EDF, the French electricity group, is allowed to take over British Energy, the UK’s main nuclear generator, in a £9 billion deal. Shares in British Energy leapt more than 7 per cent yesterday to 711p on hopes of an EDF bid. EDF’s board has given the green light to bid for all of the UK company, which recently said that it was in talks with several suitors. There are fears that EDF, Europe’s largest energy company, which cannot generate enough electricity for its UK customers, would use all the 18 per cent of total power generated by nuclear in this country if a deal goes through, leaving other energy companies to pay more in wholesale markets. Lakis Athanasiou, analyst at Evolution stockbrokers, said: “Liquidity is an issue because British Energy/EDF would control power volumes, which will eventually feed through to price. The issue may push the Government towards favouring a consortium bid involving one of the UK companies.” “If EDF gets British Energy there will be a huge impact on liquidity,” an expert added. This means any deal would almost certainly be closely scrutinised by the Competition Commission. A comparable shortage of liquidity in the wholesale gas market has already seen prices for this summer climb 45 per cent on a year ago, prompting suppliers to impose double-digit price rises. The French company said yesterday: “The UK is one of the four countries EDF is targeting as it takes part in nuclear power development. We are in contact with the UK’s players in the area to deliver this objective.” EDF is expected to submit a non-binding offer for British Energy, which will continue to talk to other companies about a possible sale or partnership for a month or so. The French energy giant faces competition from RWE and E.ON, of Germany, and Iberdrola, of Spain, which could launch a takeover for the nuclear group. Centrica would be the front-runner to participate in such a consortium even though it is thought that it would prefer a simple joint venture for new nuclear development. Analysts believe that the British Gas owner may find itself forced to join a consortium bidding for British Energy’s existing assets, so that it is not carved out of involvement in new nuclear projects. Analysts at Evolution, the broker, said the probability of a full bid for the company was increasing and suggested that the nuclear group could be sold at 900p a share, valuing it at just over £9 billion. That would set the scene for a battle for the nuclear operator, 35 per cent owned by the Government. British Energy is vital to any renaissance of nuclear power in the UK because it owns the sites where new nuclear power stations are likely to be built. Its employees also have most of the UK’s nuclear know-how and skills. The Government, faced with dwindling North Sea stocks and rising gas prices, has backed a new generation of nuclear power stations to secure Britain’s energy. UBS, the investment bank advising the Government on new nuclear stations, has published research saying that European gas prices will continue to rise in the next decade. A full takeover of British Energy by EDF would be controversial because it would concentrate responsibility for the UK’s nuclear future almost entirely in the hands of one company, controlled by a foreign government. While the UK prides itself on its open energy market, EDF would be gaining access to assets and skills that a British company could not buy in France. Home-grown utilities, such as British Gas and Scottish and Southern Energy, are also concerned that potential partnerships they are negotiating with British Energy could be torn up, leaving them out when it comes to securing supplies of relatively cheap nuclear-generated electricity in future. Alan Duncan, Conservative spokesman for Business, Enterprise and Regulatory Reform, said that competition issues would arise from a takeover by EDF or other bidders. Vince Cable, Treasury spokesman for the Liberal Democrats, said safeguards would need to be in place if the bid succeeded. France’s plan to play the lead role in the race to build a new generation of UK nuclear power plants had a boost yesterday after a rival pulled out. Atomic Energy of Canada was one of three companies competing against Areva, the French nuclear group, to register its reactor design for use in the UK.

Analysts are expecting further residential energy price rises in 2008 as UK energy suppliers seek to maintain their margins in the face of rising wholesale prices. Scottish & Southern Energy (SSE) became the last of the big six residential energy suppliers to raise its prices, announcing today that gas and electricity bills will rise by 15.8 pct and 14.2 pct respectively from April 1. Like all the UK suppliers, SSE cited high wholesale prices as the reason for the increase, saying in a statement wholesale electricity prices have gone up 90 pct and gas 100 pct since March 2007. While the energy companies have declined to comment on potential further increases ahead of next winter, analysts are predicting another rise as wholesale prices continue to go up. ‘Given the strength of forward prices for winter 2008/09, the industry will need additional price increases in September to maintain margins in the 5-7 pct range. Price increases of at least another 8 pct may be necessary,’ Citigroup analysts said in a note. Another driver for potential price rises is the subsidies for vulnerable customers, the analysts said. The government said it wants energy companies to spend 150 mln stg on social tariffs, up from 50 mln stg currently, and for prepayment meter bills to go down in line with direct debit bills. These measures are seen having an effect on bills for other less vulnerable customers. ‘Any subsidies would need to be recovered from the wider customer base,’ Citigroup said. The large energy suppliers are keen to talk to the government over possible subsidies, although none has given its opinion on the proposed 150 mln stg figure. If prices do rise again this year, more questions are likely to be asked about the state of the UK energy markets. Regulator Ofgem and a government business department committee are already investigating the energy market separately, reacting to concern about the lack of competition with only a small number of large suppliers, following the price rises this year.

A decision by Scottish and Southern Energy (SSE) to hold out against industry-wide price increases this winter has cost the company £400 million in lost potential revenues. But even as energy suppliers anticipate punitive Budget measures next week in response to consumer outcry over perceived excessive profits, Scotland’s last remaining energy utility is expected to raise its prices later this month. Pressure on the Treasury to deliver a windfall tax has mounted after average rises of 15% by ScottishPower, British Gas, npower, E.ON and EDF Energy were followed by stellar full-year profits from British Gas owner Centrica. Its residential arm saw a fivefold increase in pre-tax profits to £570m. “Scottish and Southern promised not to raise its prices until the end of March when British Summer Time begins, but everybody expects it to increase its prices after that,” said Angelos Anastasiou, an analyst at Pali Capital.  He predicted that the Perth-based company would raise its prices by just below the 15% average, while emphasising its decision to protect customers over the winter. At a time when price rises have seen an extra 500,000 households sliding into fuel poverty, SSE is expected to continue with a price-led marketing strategy. When the company, whose brands include Scottish Hydro Electric and Southern Electric, unveils its full-year results at the end of May, analysts will be looking closely at how the estimated £40-to-£50 per customer saving is offset by a growth in new business. The firm’s strategy of undercutting rivals on price has seen it almost double its customer base to 8.2 million in the past six years, at the cost of huge potential revenues. Denis Kerby, a spokesman for SSE, confirmed that its price freezing strategy had cost the company £400m: “that is the potential gain if we had charged what others have charged, but we have our own pricing policy which reflects fair pricing to customers.” Asked about the prospect of price rises after March 30, he said: “It has yet to be decided, but we are pleased to have kept our prices down for the winter and we will continue our responsible approach to pricing.”

Scottish & Southern Energy has consolidated its position as the UK’s largest streetlight contractor after snapping up a maintenance company from rival EDF. Perth-based SSE said it had paid £7.8 million for Seeboard Trading, which maintains and replaces street lighting for three English local authorities under the Private Finance Initiative (PFI). The projects, for authorities in Dorset and London, cover around 90,000 street lighting columns on contracts which have al least 20 years left to run. Prior to the deal, SSE already had contracts with 26 local authorities throughout Scotland, Wales and England, to replace and maintain more than 1.2 million streetlights, making it the largest street lighting contractor in the UK. Chief operating officer Colin Hood said additional PFI contracts are expected to be awarded before 2010, making the acquisition “a unique opportunity to build further our presence in this increasingly important sector”.  Under the latest deal around 70 employees will transfer to SSE.