Calpine Corporation, the debt-laden US power company, is considering selling one of Britain's most modern power stations, at Saltend near Hull, in the latest of a series of plant disposals that are reshaping the electricity industry. Calpine bought the 1,200 megawatt, gas-fired power station shortly after it opened in 2001 for £560m from Entergy, another large US energy group, which had run into trouble as a result of mounting debts at home and the collapse of UK wholesale electricity prices. The company has appointed Credit Suisse First Boston to advise on financial alternatives for the power station "including the potential sale of the plant". Sales of British power stations, many of them by US companies originally attracted by the liberalisation of the UK electricity market, have raised more than £5.5bn since 1999 as the industry has consolidated around just six large integrated European suppliers. The big six - EDF Energy of France; RWE and Eon from Germany; and, Centrica, Scottish Power and Scottish and Southern from Britain - have all recently bought or announced plans to build new power stations to ensure they have sufficient generation to meet burgeoning sales commitments. The domination of generation and retail markets by the big six has raised concerns about their market power by Energywatch, the consumer watchdog. Bob Kelly, Calpine's chief financial officer, speaking at a US conference last month, said: "The jury is out on whether we will stay in the UK or not. That market seems to be turning more to an oligopoly than a deregulated market. If the market fundamentals changed you should exit the market." Other recent power station purchases have included Scottish Power's £317.6m acquisition of Damhead Creek power station in Kent, which was left in the hands of creditors after Entergy walked away from the plant. Centrica similarly paid £142m for Killingholme power station in north Lincolnshire after NRG, another US energy group, left it with creditors. Scottish and Southern last year paid just £250m to buy Ferrybridge power station in Yorkshire and Fiddler's Ferry, Cheshire, after Edison Mission of the US had paid £1.9bn for the plants in 1999. Calpine, whose credit rating is B, well below investment grade, has been selling assets to reduce its large borrowings. Standard & Poor's credit rating agency said the potential sale of Saltend was "favourable for the comp-any's credit quality" but not sufficient to warrant a change in the agency's negative outlook. Calpine is thought to be seeking about $1bn (£538m) for the plant, which provides steam heat for BP's adjacent chemical works as well as selling surplus electricity through the national grid. It says proceeds from a sale would be used to redeem $360m of redeemable preferred shares with any remaining proceeds to be used in accordance with the asset sale provisions of existing bond indentures. 20.1.05

Brokers have urged investor caution as Britain's biggest electricity producer British Energy was relisted after securing court approval last week for a debt restructuring. Shares in the nuclear power group fell to 270 pence in morning trading on Monday from an opening price of 286 pence. A price of 270 pence gives BE a stock market value of 1.5 billion pounds. Stockbroker Cazenove estimated BE's fair value at 200 pence per share, citing wholesale electricity prices, plant reliability and plant lifetime extensions as the main value drivers. "We see substantial downward pressure on the wholesale electricity price due to falling gas prices and we are yet to be convinced that BE's UK nuclear fleet can be run at high load factors," Cazenove analysts said in a research note on Monday. BE has had problems at its Hartlepool and Heysham power stations. Investment bank Credit Suisse First Boston tagged BE with a target of 262 pence. BE makes its return to the stock market after a debt for equity swap which wiped 1 billion pounds debt off its balance sheet and transferred nuclear liabilities, including certain decommissioning costs, to the British government. Under its restructuring, BE is also issuing 550 million pounds of bonds due March 2022 via lead manager Citigroup. The bonds are being issued at par and pay a coupon of 7 percent. Credit ratings agencies Moody's Investors Service and Fitch Ratings on Monday assigned final non-investment-grade ratings to the new bonds issued by British Energy under the restructuring. Moody's rates the bonds Ba3, three notches below investment grade, while Fitch rates them an equivalent BB-. In 2002, a slump in wholesale power prices pushed BE towards the brink of insolvency. But power prices have risen strongly since and the nuclear power may benefit in the longer term from an international drive to cut carbon dioxide emissions, blamed for global warming, because its energy is almost carbon free. Under a carbon emissions trading scheme which the EU introduced this month, rival coal and gas-fired power stations will have to buy permission -- carbon credits -- to exceed CO2 emission limits imposed under the scheme. The scheme will also likely support energy prices beyond 2007 because tighter CO2 reduction limits will be needed from 2008 if the EU is to meet its Kyoto target for curbing greenhouse gas emissions. 19.1.05

RWE (Npower) has launched a flight promotion to encourage customers to join its dual fuel tariff. For a large corporation to implement an ethical and environmentally responsible marketing strategy, every activity - internal and external - must fit with a responsible ethos. Energy companies should take note, as marketing environmentally responsible products concurrently with irresponsible marketing promotions may alienate valued customers. In supplying power and gas to customers, energy companies are significant producers of greenhouse gases, especially CO2. These companies are at the forefront of implementing energy saving measures and schemes designed to meet the government's CO2 targets. The UK's major suppliers have all developed green product offerings, such as renewable energy tariffs, and more recently companies have introduced carbon neutral products. Without adding emissions of products manufactured and disposed, an average household of three people, using only one car, consuming 3,500kWh of electricity and 20,500kWh of gas will directly produce 9-10 tonnes of CO2 emissions in one year, according to the Climate Care Trust. If this family switches to RWE npower for dual-fuel, and takes up the free flight promotion, it will needlessly produce an additional 12% of CO2 emissions. Similarly, Scottish and Southern Energy offers 250 air miles in the first year for every new dual fuel customer while at the same time offering its carbon neutral Power2 product. For the Power2 product, trees are planted to offset the CO2 emissions generated by the customer's energy consumption, again creating something of a contradiction. The growth in air travel is presently one of the biggest barriers to reducing CO2 emissions in the west. It would appear that these energy companies do not fully understand the potential of developing an integrated marketing strategy based on corporate and environmental responsibility. RWE npower is one of the UK's largest wind farm developers and SSE promotes its hydropower credentials and yet both offer contradictory promotions. It may just be a case of the company's various units failing to sing from the same hymn sheet, but is more likely to be that these organizations have not understood the potential of strategic positioning as leaders in corporate responsibility. If an energy company can present a '360 degree' environmental responsibility strategy, it would have a very powerful marketing strategy. 17.1.05

ScottishPower has increased its gas and electricity customer base to 5 million. ScottishPower saw rapid account growth during 2004, bringing it in line with other suppliers, many of which comprise three, rather than ScottishPower's two, former regional electricity companies. The UK retail market is now entering a phase where the original rule of regional discounting against the incumbent's customer base while maintaining high in-area prices is starting to unravel. Over the 1998-03 period, the five million customer account benchmark was the scale considered necessary for a UK energy retailer to compete against Centrica. However, ScottishPower, the only company to consist of two regional electricity companies (RECs), was considered sub-scale but over 2004 grew organically and can now be compared to the other smaller incumbent retailers, such as SSE, EDF Energy and RWE npower. The company has gained accounts by aggressively pricing against the leading retailers, Centrica and Powergen - two companies that have actively attempted to protect margins over market share. ScottishPower's position is interesting, as the company probably has more out-of-area electricity customers than original in-area electricity customers. It also has more gas customers than original, in-area electricity customers. Against this, ScottishPower's in-area retention rate has been better than other companies, although the growth in accounts over 2004 has resulted in it having a customer base with only around 30% being on in-area tariffs. The in-area electricity customers have traditionally been the mainstay of profitability for incumbent electricity suppliers, yet it appears that suppliers will now have to focus on securing margins on dual-fuel customers. ScottishPower has acted aggressively during a period of low switching, accentuating its difference to the competition. The continued reduction in ScottishPower's electricity loss rate has resulted in the company achieving a net gain in customer numbers and a decline in overall competitor activity has also reduced its churn rate. To gain accounts, the company has not had to implement market-leading prices. It has priced off the "big three" and secured the lowest retail price through an online-only service. The key feature of the UK market for 2005 is that the pricing differential between in-area and out-of-area pricing has narrowed significantly and some incumbent suppliers are starting to be cheaper in-area than other competitors. Other suppliers could do well to start approaching the market on ScottishPower's terms, driving scale through acquired out-of-area and gas customers, rather than relying on the retained base of original in-area customers. 17.1.05

One of the UK's biggest energy suppliers has reneged on an assurance it gave just two months ago that it would not impose further price rises. Energy giant Powergen is pushing up prices for its EnergyOnline customers from 31 January by 14p a day, equivalent to some £54 a year. Electricity prices will increase by 8.9% and gas by 9.6%. Powergen's latest hike is the same as those announced in November for ordinary residential customers. At the time the company insisted that its EnergyOnline customers would not be affected, an assurance it has now effectively torn up. French State-owned EDF Group is also set to become even more expensive on Monday with its third price hike since March 2004. The company blamed world energy prices for an 8.1% increase in gas tariffs and a 5.4% jump in electricity prices, even though fuel prices have fallen. A spokesman for Powergen, whose prices soared by 17.6% last year, and will now rise again, said the company had held off making the latest increase for as long as possible. He added: 'It comes as a direct result of unparalleled rises in wholesale costs which are affecting all energy suppliers, many of which have already announced price increases. Wholesale costs have risen 39% for electricity and 49% for gas in the last six months.' Vincent de Rivaz, chief executive of EDF Energy, said that the energy industry had talked about what it can do to help customers who were hard pressed by the constant price increases. But, he added: 'The time for talking is over ? action is required and EDF Energy has decided to take the lead on this.' A company spokesman admitted that wholesale energy prices have come down recently but said: 'They are still high and we have been absorbing the cost in recent months. If prices continue to fall we will consider lowering our prices also. 17.1.05

German owned utility E.ON UK (Powergen) is seeking planning permission for a £45 million onshore wind farm in the Scottish Highlands capable of powering about 30,000 homes, the company said. The proposed project, at Camster near Wick in Caithness, would have 25 turbines with a total capacity of 50 megawatts, making it one of E.ON UK's biggest onshore wind farms. "We believe this is a great site for a wind farm and that it could power around 30,000 homes and save the emission of more than 60,000 tonnes of carbon dioxide every year," said Jason Scagell, E.ON UK's head of renewables, in a statement. Britain supports green energy projects like wind farms through a scheme that forces utilities to take a certain amount of their electricity from renewable sources. The Government is banking on green energy projects, particularly wind, to help curb greenhouse gas emissions. But many wind projects have struggled to get planning permission in the face of stiff opposition from local residents, who say they spoil the landscape with their towering turbines. E.ON UK, owned by Germany's biggest utility E.ON, has stakes in 20 wind farms across the UK. Friday's planning application comes only days after E.ON UK said it had applied for permission to convert an oil-fired power station near London into Europe's biggest gas-fired plant. The project would cost £800m. Parent company E.ON last month announced a 13 billion euro investment plan for 2005-2007. In November, Scottish Natural Heritage said that it had decided not to object to a planned wind farm on Skye, despite concerns about its possible effects on golden eagles. 12.1.05

EDF Energy, one of the UK's biggest power suppliers, is putting up its prices for the third time in less than a year. The French-owned business is to raise gas prices by 8.1 per cent from January 17, and electricity prices by 5.4 per cent. The price rises for the 5 million customers of London Energy, Seeboard Energy and SWEB Energy come at a time when wholesale gas prices, the primary driver behind increasing prices, have been falling. However, industry observers said that EDF was unlikely to be the only company to have to put up energy prices again as high world costs continue to force charges up. With the latest rise, EDF price increases since March 1, 2004 total 16.2 per cent for gas and 15.9 per cent for electricity. However, EDF has offered to freeze prices until next year for its poorest customers. Vincent de Rivaz, chief executive of EDF Energy, said: “What is important is that we are the first to do something for those customers that are most in need.” EDF's 250,000 fuel-poor customers, who spend more than 10 per cent of their income on heating their home, will see the price rise suspended till March 2006. If wholesale energy prices have fallen by that time, EDF may have recovered enough ground to shelve the price increase. The decision to freeze prices for those hardest hit will be welcomed by campaigners who have called for a “social tariff” from suppliers. M de Rivaz said that he was convinced that the step was the correct decision to take, after seeing the extraordinary generosity of the British people to victims of the Asian tsunami. Allan Asher, chief executive of energywatch, the consumer watchdog, said: “This is the first increase of 2005. It won't be the last.” However, he praised EDF's decision to launch a social tariff. “We hope this initiative sets an example and we will be happy to work with EDF and any other supplier to develop effective social tariffs,” he said. At the beginning of last year there were 3.5 million people in fuel poverty, but that number is thought to have increased significantly. Although this is EDF's third price rise in ten months, its total rise still lags behind the rises of British Gas, npower and Powergen, energywatch said. The average household is now paying 20 per cent more for its energy than it was last year. Energywatch calculates that five years of falling prices have been wiped out. The Government estimates that every 1 per cent rise in gas and electricity prices above the rate of inflation tips 40,000 households into fuel poverty. 10.1.05

German-owned utility E.ON UK says it is seeking planning permission for a 45-million pound onshore windfarm in the Scottish Highlands capable of powering about 30,000 homes. The proposed project, at Camster near Wick in Caithness, would have 25 turbines with a total capacity of 50 megawatts, making it one of E.ON UK's biggest onshore windfarms. "We believe this is a great site for a wind farm and that it could power around 30,000 homes and save the emission of more than 60,000 tonnes of carbon dioxide every year," said Jason Scagell, E.ON UK's head of renewables, in a statement on Friday. The government supports green energy projects like wind farms through a scheme that forces utilities to take a certain amount of their electricity from renewable sources. Ministers are banking on green energy projects, particularly wind, to help curb greenhouse gas emissions. But many wind projects have struggled to get planning permission in the faced of stiff opposition from local residents, who say they spoil the landscape with their towering turbines. E.ON UK, owned by Germany's biggest utility E.ON, has stakes in 20 windfarms across the UK. Friday's planning application comes after E.ON UK on Tuesday said it had applied for permission to convert an oil-fired power station near London into Europe's biggest gas-fired plant. The project would cost 800 million pounds. Parent company E.ON last month announced an 18.70 billion euro (13 billion pound) investment plan for 2005-2007. 10.1.05

The U.K. arm of German utility RWE AG's has stopped short of committing to build a £600 million power plant, in part due to uncertainty over the fledgling European Emissions Trading Scheme. Npower said Thursday that it had asked for planning permission from the U.K. government to build a 2-gigawatt power plant near the proposed Dragon Liquefied Natural Gas terminal in Wales, but would wait until after February to say whether it would go through with the project."We don't yet know how punitive the carbon trading scheme will be so we can't say yet that we will go forward," a spokesman told Catalyst. On Jan. 1st, European companies became liable for their emissions of carbon dioxide, a gas that causes global warming. Companies are allocated emissions rights free by governments and can buy or sell the rights on the market depending on whether they exceed or beat their targets. At the last minute, the U.K. government increased the amount of carbon dioxide utilities are allowed to emit, throwing the entire system into confusion.The European Commission is still reviewing the revised U.K. scheme and experts don't know when it will be approved. The spokesman said Npower is waiting for the Commission to approve the U.K.'s scheme as well as separate Commission directives that require power plants to install pollution-reducing technology on their smoke stacks. The company has around a year to see how the regulatory climate pans out, as the Department of Trade and Industry can take that long to review environmental and planning specifications, a spokesman said. But if the company does decide to build the power plant it could be up and running by 2010. Experts also say that the economic climate is right for a new build in the U.K. Predictions that the spark spread - the difference between the cost of natural gas and cost of electricity - should be £10 a megawatt-hour by 2008. This is the magic number companies often use to determine whether a new power station will be profitable. Most importantly, British Energy PLC is planning to close down several nuclear power plants from 2008 onwards. The loss of these plants mean several companies including Centrica PLC and E.On are also looking to build new gas-fired plants. E.On announced Tuesday that it was spending £800 million to transform its oil-fired Grain power plant, which only operates sporadically in winter, into a natural gas power plant that could operate full time. The proximity of Npower's proposed new power plant to the Dragon LNG terminal will allow it to take advantage of new pipelines being built to link the terminal to the nation's network of natural gas pipelines. Dragon is being built by BG Group and Petroplus International N.V.and should be processing 4.5 million metric tons of LNG per year by 2007. 7.1.05

RWE npower is seeking the go-ahead to build a new gas-fired power plant on the site of a former oil-fired station in Pembroke, south Wales. The company has not put a figure on the likely cost of building the new combined cycle plant but industry sources suggest it is likely to be between £500m and £600m. Yesterday the company said it was only seeking permission to build the plant and had not yet committed itself to a final decision. "Consent to go ahead would enable us to develop the next generation of power plant if UK and EU energy policy, and market conditions, are supportive of investment," RWE npower's chief executive, Andrew Duff, said. RWE npower's plans for a 2,000MW plant comes just two days after E.ON UK said it was planning to invest £800m in converting its existing oil-fired Isle of Grain station in Kent into a gas-fired generator. E.On believes that about half Britain's generating capacity will need to be replaced in a decade as old nuclear plants are shut down and, from 2008, carbon emissions trading and the European Union's large combustion plant directive affects the economics of coal-fired capacity. Britain's loss of all-year gas self-sufficiency had left a question mark over security of gas supply but planned pipelines and greater gas-storage capacity have eased concerns. "The security of the UK's electricity supply depends on maintaining a good mix of energy sources. Gas is likely to play a key role and [the Pembroke] application creates options at this site," Mr Duff said. · Ofgem, the energy industry regulator, said yesterday that all 14 British electricity distributors had accepted its five-year price control regime, which is effective from April. This governs how much the companies can raise prices in real terms and commits them to investing £5.7bn on developing their networks. 7.1.05

The U.K. electricity regulator, the Office of Gas and Electricity Markets, or Ofgem, said Thursday that all 14 electric distribution companies in the U.K. had accepted five-year price controls. The prices go into effect in April 2005 and affect the electricity distribution companies of Scottish and Southern PLC, Scottish and Southern Energy PLC, United Utilities PLC, Electricite de France's UK subsidiary EDF Energy, German utility E.On AG's U.K. subsidiary E.ON U.K. and Scottish Power PLC. Though the U.K. electricity market is deregulated, Ofgem still determines how much distribution companies - the units which control the delivery of electricity to homes and businesses - may charge customers and invest in the electricity network. Companies have the right to contest the regulator's price caps since they were announced in November, though all companies decided to accept them. Under Ofgem's proposals, companies will be able to invest an additional GBP5.7 billion in the electricity network. But they will only be allowed to raise their distribution charges - the amount they charge customers for the use of the network - by 1%, an average of 6 pence per month on domestic customers' electricity bills. The regulator expects that the distribution companies will pay for the massive increase in network investment by increasing efficiency and cutting costs. 6.1.05

Britain's electricity generating industry received an £800m boost yesterday when E.ON UK kicked off the conversion of its Isle of Grain facility in the Thames estuary into one of the world's largest gas-fired plants. The project, expected to be completed by the end of the decade, will convert the power station - which was built in the 70s - from an oil-fired facility used on a part-time basis into a year-round gas plant capable of producing sufficient electricity for up to 2 million homes. The decision comes at a crucial time for Britain's power generation industry. According to E.ON, Powergen's parent group, the combination of Britain's ageing nuclear plants and European Union environmental measures such as the carbon emissions trading scheme (see below) and the large combustion plant directive, which covers sulphur emissions and which comes into effect in 2008, will mean that half the country's power stations will have to be replaced by the middle of the next decade. "Converting Grain would allow us to produce more environmentally friendly electricity for the equivalent of half the homes in London," E.ON UK chief executive Dr Paul Golby said yesterday. Although the industry faces hefty investment demand for new plant in the coming years, some executives have expressed a reluctance to commit their firms to making that investment until the framework within which the industry will have to operate is clear. "We have always sought long-term certainty about policy. Decisions made today have an effect 30 to 35 years in the future. Yes [the Grain decision] is a show of confidence in how we see the future going, but we are still looking to see we have the long-term framework that politicians of all political parties are signed up to," an E.ON UK spokesman said. The carbon trading scheme, which is in theory launched at the beginning of the month, is a crucial issue for large parts of Britain's power generation and manufacturing industries.The government argues that it is taking the lead in Europe in driving the process forward, but some in manufacturing are expressing concern about the impact it could have on British competitiveness because of the way in which it is being introduced. The idea is simple. The world is suffering from a surfeit of carbon dioxide, and big industry is a big contributor; persuade it to rein in emissions and Europe takes a big step towards achieving the goals it signed up to in Kyoto. One way would be to slap a carbon tax on industries such as power generation, steel, cement or paper making, invoking the principle that the polluter pays. The European commission, however, has gone for a system of trading carbon dioxide emissions. It works this way: through commission-approved national allocation plans, governments tell companies how much carbon dioxide their plants can belch out into the environment. If they emit less they can sell the unused "allocation" to somebody else. If they use more, they have to go into the market and pay for somebody else's unused allocation to make up the difference. It was pioneered in the United States for sulphur dioxide emissions and, according to Tom Delay at Carbon Trust, it is "the cheapest way of achieving an environmental aim". Nor are those on whom the burden will fall too vocal in opposition. Few in industry would prefer a straight tax to a system that offers cash back for cutbacks. And there is a big additional plus. City institutions want to be leading lights in the development of carbon trading, a significant and, they hope, profitable addition to London's portfolio of financial services. There are concerns that the scheme is being introduced before British companies know their allocations and that the UK government is looking for tougher targets than other countries. Britain is seeking to cut carbon dioxide emissions by 20% by 2010, compared with the Kyoto target of an 8% cut by 2012. Supporters argue that lower emissions can mean lower fuel bills, but critics worry that if British firms have to buy more emission certificates than European mainland competitors with the same emission levels, that will spell competitive disadvantage. 6.1.05

Utility company EDF Energy has signed a £9m outsourcing contract to manage and develop its customer-related IT systems over the next three years. The UK-based electricity and gas provider handed over its customer management systems, including those processing customer service, acquisition and retention, to a consortium of companies including consultancy Capgemini at the end of last year. It will use the global resources, IT system development, project management and support services of the consortium to create a modern customer-handling system intended to bring cost and process efficiencies to its business. As an existing EDF partner, Capgemini was selected for its expertise in IBM, Java, Oracle and Siebel technologies owned by the energy company, which generates seven per cent of the UK's electricity, and serves 5m UK customers. EDF Energy is part of the European EDF Group and was created in 2003 as a result of the merger of London Electricity and Seeboard companies. 6.1.05

Britain's biggest coal-fired power station has moved closer to winning compensation for unpaid contracts from collapsed energy group TXU Europe. A consortium of banks which owns North Yorkshire-based Drax has backed calls for a vote to apply for funding from the administrators of TXU. If approved, Drax could receive £348m in compensation by 2006. The group plunged into crisis in 2002 when a collapse in electricity prices led to TXU's demise. Drax, Scottish & Southern Energy (SSE) and International Power all had trading arrangements with TXU. Drax lost a lucrative sales contract and was left exposed to low wholesale energy prices. The power station near Selby is now in the hands of banks after US owner AES Corp withdrew support. In December the owners of Drax appointed advisors to examine the potential £800m sale of the power station, which has output sufficient to meet 7% of the UK's electricity needs. Other options under consideration included using Drax as an acquisition vehicle to pick up other power assets. Heavy investment Potential bidders for the station were said to include British Gas owner Centrica, as well as International Power and Scottish Power. Drax, which burns 36,000 tonnes of coal every day and is a major customer for UK mines, has also invested heavily to reduce its emissions. In early November, Drax reported a sharp improvement in third quarter results and said it was confident about its profit outlook for 2005 and beyond. Turnover in the three months to the end of September lifted to £107.3m from £89m a year earlier. 4.1.05

Power supply problems in the UK have highlighted some of the challenges associated with unbundling. Metering is the link between the retail and distribution businesses in an unbundled energy retail market. Although it is meant to improve competition, UK metering regulation is complex and can lead to serious difficulties. Markets that are currently unbundling should pay close attention to the UK case and assess whether they really need to introduce metering competition. The UK energy retail market is unique in its complexity and the voracity of its regulator, Ofgem. One of the UK's unique features is that metering is open to competition for all customers. In fact, all UK energy buyers can choose a company to own their meter, a different one to maintain it, another one to read it and a fourth to aggregate the data. When UK competition was conceived, competition in metering was perceived as an important factor in limiting the power of incumbent suppliers - and competition has worked in the UK like nowhere else. However, it is all too easy to criticize aspects of the regulation as complex and unwieldy with hindsight. The fact remains that UK metering regulations can cause real difficulties for customers when problems do occur. For example, a church in the UK has been without heating and electricity since December 14th following an explosion and there are doubts as to whether supply will be restored before Christmas. The different responsibilities and scheduling of the distribution company, Central Networks, and the supplier, British Gas, have made it difficult to schedule a time for the work to be completed, leaving the customer very frustrated. Whilst this kind of case is relatively rare, it does bring into question the need for the customer to have a choice of who provides their metering services. Other EU markets that are currently unbundling their distribution and retail business due to the 2nd Directive should play close attention to the UK's situation. Metering is the important link between the retail and distribution functions and whilst the ideology of complete competition is meant for the benefit of the consumer, such poorly designed regulations will create serious difficulties for the many consumers that still have no idea what unbundling is. 4.1.05

LONDON -(Dow Jones)- E.ON U.K. Tuesday accepted the U.K. electricity regulator's cap on how much the power distribution company will be allowed to charge its customers. The tariff reductions announced by the regulator in late November hit E.On AG's (EON) and Electricite de France's (EDF.YY) U.K. subsidiaries particularly hard. E.On's two Midlands networks will have to reduce tariff charges by 2.9% and 5.7%, respectively.If the company had been unhappy with the terms, it could have taken the issue to arbitration at the U.K.'s competition commission."The review is certainly challenging, but we believe that the proposals will allow us to deliver an efficient, quality service to our 4.8 million distribution customers over the next five years," E.ON U.K.'s Chief Executive Paul Golby said. The U.K. power market is deregulated, but the Office of Gas and Electricity Markets, or Ofgem, still sets investor returns for the 14 distribution companies throughout the country.Scottish & Southern Energy PLC (SSE.LN), ScottishPower PLC (SPI) and United Utilities PLC (UU) were allowed to raise their tariffs in November's price review. United Utilities was allowed to boost its tariffs by 8%, Scottish & Southern by 6.6% between its two companies and ScottishPower by 5.29%.Ofgem raised the allowed return on investment for the industry overall to 4.8% from the previous rate of 4.6%.The regulator sets the return on investment according to a variety of cost metrics, including each company's taxes, pension liabilities and the cost of doing business in particular regions. But it also judges each company's record in tackling blackouts and assuring smooth service.Ofgem uses tariffs as a stick to prod companies to meet the regulator's performance standards.The regulator agreed to E.ON's capital expenditure budget of GBP1.2 billion to be invested in its network over the next five years, which could lead to the creation of 600 jobs throughout the Midlands, the company said. 3.1.05

The U.K.'s energy watchdog said Monday that it would allow transmission operators to lift their investment in the electricity network by more than half, in a bid to spur an expansion in renewable energy. The companies that run transmission lines include Scottish and Southern PLC, ScottishPower PLC and National Grid Co. The U.K.'s Office of Gas and Electricity Markets is to allow the companies to increase the amount they spend on the networks to GBP560 million from an initial proposal of GBP360 million.Most of the cash will be spent to upgrade the power network in Scotland and Northern England, where the majority of new windfarms is being built. Such investment will link yet-to-be-built wind turbines with the nation's power grid, underpinning government plans to boost the use of renewable electricity and cut pollution. Ofgem Chief Executive Alistair Buchanan said the price control review for transmission companies wasn't due until 2007 but "we have decided to take action early to respond to the need for investment to accommodate new renewable generation."The U.K. government is attempting to wean the country off fossil-fueled power plants because they produce gases blamed for global warming.By 2010 the government is hoping that 10% of U.K. electricity is derived from renewable sources such as windfarms and biomass burning plants. At present only 4% of the U.K.'s power comes from renewable sources and it seems increasingly unlikely the government will meet its targets.Part of the difficulty has been in securing the permits for onshore windfarms, the most economically viable form of renewable energy but also the one that arouses the most protests from rural preservation lobby groups. Scotland has become a popular spot for building new farms, in part because it is the windiest region in Britain but also because it is sparsely populated and few local residents object to the huge turbines. All three UK energy transmission companies have been asking for upgrades to their networks. They want to connect renewable energy to the networks but also want to ensure power derived from conventional sources such as coal and nuclear plants makes it efficiently to the national grid. An executive UK energy broker who specializes in renewable energy at a U.K. utility described the transmission system in Scotland as "creaky" and in need of an upgrade. He added it was hard to get Ofgem to agree to investment in the grid since it inevitably led to higher customer bills."You have to show them a compelling case to invest in the grid and a lot of companies are turning to renewables since the government really wants to see this stuff built," he said.The U.K. energy market is deregulated but the government still determines how much transmission companies, which control the nation's electricity network, may spend on investment. 21.12.04

Holiday village operator Center Parcs warned yesterday that higher energy bills would hit results in its next financial year, causing shares to plunge 11pc. The group, which specialises in all-weather, glass-domed family holiday centres, including one at Elveden Forest in Suffolk, said hikes in gas and electricity tariffs increased like-for-like costs by 9.1pc in the first half. It warned energy prices would rise by around 25pc in the year to April 2006 and that it would not be possible to pass these on fully to customers. Center Parcs, which has four UK sites and hopes to open a fifth, said underlying pre-tax profits came in at £20.1m in the 24 weeks to October 7, against £19.5m last year. It described the results as "solid" given the challenging trading environment. New luxury accommodation was sold at peak prices during the summer, helping overcome a difficult first quarter. But it warned of further increases in gas and electricity prices in the second half. It was unable to pass these on to customers since brochures featuring costs for 2005 were published in October. This, together with higher council tax costs, would affect 2006, although bookings for that year were in line with expectations. As well as Elveden, Center Parcs UK has sites in Longleat Forest near Bath, Oasis Whinfell Forest in the Lake District, and Sherwood Forest near Nottingham. Last week it revealed plans for a new £160m complex in the Duke of Bedford's estate at Warren Wood, near Woburn in Bedfordshire. Center Parcs said average occupancy was 91.5pc, down from 93.3pc for the whole of last year. Elveden Forest, which was closed after a fire in 2002, saw a surge in demand when it reopened last year but yesterday reported a return to more normal customer levels. Group turnover was slightly lower than last year at £113.2m as lower occupancy and the sale of an adventure business offset increases in capacity and prices. Shares fell 9.5p to 78p yesterday. 21.12.04

E.ON AG said it plans 18.7 bln eur of investments in the next three years, much of which will go towards modernising and maintaining its gas and electricity operations, primarily in Central Europe. Analysts said that while they weren't surprised by the announcement, its massive size left investors with a case of sticker shock. They sent the shares to the bottom of the DAX. 'I don't think there were a lot of surprises, but whenever a company talks about investments, especially 18.7 bln worth, the market is going to react,' Neil Bradshaw of JP Morgan said. 'In fact I told the traders yesterday that the stock would come off today.' At 3.41 pm, E.ON's shares were the second-worst performer on the DAX, down 1.60 eur or 2.37 pct to 64.68, while the DAX-30 index was off 46.48 points or 1.10 pct at 4187.23. But when the world's largest publicly-traded energy service provider invests, it invests big. E.ON said 12.6 bln eur of the expenditures will go towards infrastructure, 5.9 bln of it in Central Europe. The utility will spend the remaining 6.1 bln eur amount increasing its interests in existing financial assets and securing its supply of natural gas. 'We're making targeted investments to increase our shareholdings in Central and Eastern Europe, and at the same time we're making substantial investments to help secure the supply of energy for our customers,' chief executive Wulf Bernotat said in a statement. 'We're also planning to build new, environmentally friendly power plants, to upgrade our power and gas networks, and to increase our ownership interest in natural gas production.' E.ON doesn't plan to make any major acquisitions, Bernotat said later during a teleconference. He said that by this he meant E.ON would not purchase assets in the 5 bln eur range. The German giant has invested heavily in Eastern Europe this year, including a 2.1 majority stake in the gas business of Hungary's MOL RT and a 303 mln eur stake in Romania's Distrigaz Nord gas distribution company. E.ON said today it also plans to acquire a majority interest in Slovakia's ZSE. It currently holds 40 pct of the company. Looking further east, Bernotat said there is still no clarity on the timing of the utility's more than 3.4 bln eur in planned gas export projects with Russia's OAO Gazprom. 'We have not yet scheduled any senior level meetings in the next month or months,' Bernotat said during a conference call, adding that the projects were still on track and that they had concluded a round of talks this week. In July E.ON signed a memorandum of understanding with the Russian gas giant on the matter. Among its other planned investments through end-2007, E.ON's Pan-European Gas unit will spend about two-thirds of a 4.3 bln eur total investment package on acquisitions. Primarily, these funds will pay for the MOL RT stake. The UK market unit will invest the bulk of 2.8 bln eur in the upgrade of its distribution network and generation assets. The Nordic market unit's capital expenditure will total 3.7 bln eur, 2.2 bln of which is earmarked for the acquisition of additional shares in Sydkraft. The US Midwest unit will invest 1.2 bln eur, including the construction of a modern 750 megawatt coal-fired power plant. E.ON reiterated it expects to sell its Viterra real estate unit in 2005. Earlier press reports valued the business at about 3 bln eur. However, Bernotat said that E.ON was not likely to sell its 42.9 pct stake in the Degussa AG chemicals company until 2006. 20.12.04

Concerns over Britain's dwindling domestic energy supplies have forced politicians and the biggest gas and electricity groups to look east for a new source. Their sights have settled on Russia. By next year Britain will be a net importer of gas, 40 years after British Petroleum made the first discovery of gas in the North Sea. Ofgem, the energy market regulator, said last month that there is sufficient power capacity to keep Britain's fires burning this winter — even through a Siberian cold snap — but that situation will change between now and 2010, as older nuclear generators and dirty coal-fired power stations are turned off and North Sea gas supplies run down. British gas production peaked in 2000 at 108.4 billion cubic metres of gas a year and is now declining slowly. The UK Offshore Operators Association (UKOOA), the industry body that represents oil and gas producers, says that by the end of the decade we will be able to cover only 60 per cent of our gas needs from the North Sea. Thus the search is on for new sources of gas from which to import. One fifth of the world's gas reserves are in Russia and are controlled by Gazprom, the giant Russian utility. Gazprom was in London last month and began an aggressive campaign to gain one tenth of Britain's gas market within the next five years. The company, which supplies a quarter of European demand, has declared that this would increase its sales by 40 per cent a year. That puts Gazprom in direct competition with Britain's traditional gas producers, notably BP, Total and Shell. At present the Russian group sells about three billion cubic metres of gas to the UK market, which totals 100 billion cubic metres. It expects to increase its sales to 13 billion cubic metres by 2010. It will do so by focusing on the industrial sector, rather than supplying directly to homeowners. Industry analysts have no doubt that the group will achieve its ambitious target, which will propel it to the position of second-largest UK supplier. Nobody will put a date on when Britain will run dry of oil supplies, but Wood Mackenzie, the energy consultancy, believes that the country will be producing as little as 23,000 barrels of oil a day by 2025, compared with just under two million barrels today, although that estimate does not include new finds that could boost supplies. Gordon Brown has been trying to make the North Sea fiscal regime more attractive to producers, having stung the industry with a windfall tax in 2002. The Department of Trade and Industry has also been working on schemes with UKOOA aimed at prolonging the life of North Sea reserves. 20.12.04

Soaring household fuel bills and petrol prices triggered a sharper than expected jump in inflation last month. Utility companies' steep increases in charges for gas and electricity left domestic fuel costs up 11 per cent from a year earlier — the sharpest annual rise for almost 15 years. Further increases being pushed through by energy suppliers are set to send prices higher in the coming months, adding to inflationary pressures, the Office for National Statistics said. With petrol prices up by 1.4 per cent last month, before the forecourt price war broke out, the sharp rise in domestic bills saw inflation leap. Headline inflation on the Bank of England's benchmark consumer price index (CPI), climbed to 1.5 per cent last month, up from October's 1.2 per cent annual rate. The rate, while well below the Bank's 2 per cent target, was the strongest for five months. Inflation measured on the retail prices index (RPI) of living costs, which forms the starting point for many pay demands, rose to an annual 3.4 per cent — its highest level for more than four years. Inflation was also fuelled last month by less aggressive seasonal discounts on air fares than was seen last year. The strength of the inflation data reignited speculation that interest rates could rise beyond their current 4.75 per cent next year. Economists said the key issue for the Bank would be whether the inflation rate on the RPI fed through into an acceleration in wage pressures. Ross Walker, of RBS Financial Markets, said: “If this pick-up in inflation is mirrored by increases in pay deals early next year then a further rise in base rates will be more likely than not.” However, some analysts noted that without the gains in energy and fuel costs, CPI inflation would have fallen below the 1 per cent threshold that would force Mervyn King, the Bank's Governor, to write an explanatory letter to the Chancellor. Jonathan Loynes, of Capital Economics, said that core price pressures, particularly for high street goods, remained subdued and inflation could ease after the drop in oil prices. “The inflation outlook will present no major barrier to lower interest rates next year,” he said. 20.12.04

Householders in Wales are being offered miniature wind turbines to help counter the rising cost of gas and electricity. The device, with rotor blades of 7ft diameter, could reduce domestic electricity bills by almost a third, according to energy company Swalec. The firm believes the mini turbines are the first of their kind in the world and says they could become as commonplace on house walls as satellite television dishes are today. But Swalec admits it would take several years for home owners to recoup their outlay, even after allowing for grants for energy-saving house improvements. Swalec spokesman Denis Kerby said the concept could ultimately reduce income to Swalec from electricity and gas bills. "That's a small price to pay for increasing the UK's renewable-energy potential," he said. Swalec is part of the Scottish and Southern Energy group of companies, which already owns most of Scotland's hydro-electricity plants. It launched the mini wind turbine in Scotland last month, installing two on a filling station near Edinburgh airport. Before installing a turbine, a structural survey is made of each property along with an assessment of whether the location is windy enough to make the project worthwhile. Mr Kerby said most places in Wales would have enough wind, and the main exceptions would be properties sheltered by office blocks or other tall buildings. "It's an attractive prospect if you're in a remote area and you're at risk of power outages," he added. A mini turbine will not totally replace the traditional electricity supply, however, as it will not produce power on calm days and its output can't be stored, other than by limited means such as storage heaters. Mr Kerby said the machines involved simple mechanical parts and would last 30 years or more with regular maintenance. He said the turbines would not cause noise nuisance. "They're almost silent. There's a slight whirr as they go around. Wind chimes are noisier." Buying and installing a mini turbine would cost about £8,000, depending on the installation's complexity, but grants are available which would reduce the cost to the householder to £5,000 or less. Swalec estimates that a typical household would save about £300 a year with a wind turbine. That implies it would take about 17 years to recover the outlay. Melfyn Williams, former president of the National Association of Estate Agents, said the device could be popular in rural areas because it would be at its best in high winds, when power cuts were most likely. But the device was unlikely to add value to a house or make it significantly easier to sell. "I can't see a lot of people being able to afford it. It will be emotion-driven more than anything else. "If the cost comes down, as it did with computers, people would be prepared to jump on the bandwagon. If it cost £1,500 it would pay for itself within the seven years which is the average time between house moves." Higher tariffs for gas and electricity could make energy-saving devices a top priority for housebuyers in five or 10 years' time, he added. Mr Kerby said mini turbines would need planning permission, although controls could eventually be relaxed to bring them under "permitted development". The Campaign for the Protection of Rural Wales said local authorities should be proactive. CPRW director Peter Ogden said, "In principle we support the issue of domestic energy generation, if it prevents major areas of uplands being industrialised for electricity generation." The Civic Trust for Wales, which supports improvement of built-up areas, said a test case was needed to establish how councils would deal with the visual impact of mini turbines on houses. Director Matthew Griffiths said, "At the very least I would expect the turbines to be deployed with the same sensitivity as one would deploy a satellite aerial. There are restrictions on satellite aerials that operate in conservation areas or listed buildings." 16.12.04

A burning tyre in the doorway fills the reception area with acrid smoke, and a volley of raw eggs splatters against the glass. Visitors to the Paris headquarters of Electricité de France flinch as fire crackers explode in the revolving doors. Another day at Europe's biggest power company - and another demonstration by its workers against the proposed flotation of EdF. Upstairs in his vast office, Pierre Gadonneix is diplomatic about the obstacles he faces in bringing EdF to market next year. "It is true that the employees are worried," he says in his first interview since arriving as executive chairman. "This has resulted in some debate." Mr Gadonneix has been at the helm of EdF, a bastion of union activism and a symbol of public service in France, for just under 100 days. Yesterday he came out of self-imposed purdah to reveal his master plan for the company, which is staggering under debt and onerous off-balance sheet liabilities that fall due next year. The situation is serious, he admits. While EdF has strong cashflow and a solid mix of regulated and non-regulated activities, it suffers from a balance sheet too feeble to meet its requirements. The €24bn ($32bn) debt generated by an international expansion programme is being carried by shareholders' funds of just €20bn. On its own, this would not be a catastrophe for a highly cash-generative company. But when the off-balance sheet liabilities are added, "we are in a difficult situation". Among the biggest calls on EdF's funds are pension liabilities the company estimates at €14bn; another is the options arising from minority stakes in Italian and German power groups. If exercised, these put options could cost a further €8bn, Mr Gadonneix says. The priority is to restore profitability and to "make EdF a European leader and consolidate our European position". This is the key proposal he presented to EdF's senior management as he outlined the strategy for the next three years. In essence, it is to remain focused on Europe, which means France, the UK, Germany and Italy, to withdraw from value-destroying markets, resume investment after a long period of abstinence and deliver productivity improvements. "We are in a historic moment in the development of EdF. There is a restructuring of the sector in Europe and I am convinced there will one day be an integrated market for electricity in Europe," Mr Gadonneix says. Positioning EdF to be a leader in that integrated market will cost up to €56bn over the next three years, he argues. And after three months of study he can divide the financing needs into three categories. First, the maintenance and renewal of existing plants in France and abroad will cost an estimated €18bn over three years. Second, to consolidate its European position, EdF will have to set aside a further €20bn. This will not only cover the costs of meeting its option obligations in Italy and Germany, but would be enough to buy out the minorities should EdF be forced down the unlikely route of launching full takeovers. The sum also includes €6bn to expand EdF's presence in gas. Finally, a further tranche of €15bn-€18bn will be needed to meet EdF's obligations on pensions and the dismantling of nuclear power stations. Mr Gadonneix knows the bill raises some big questions. For example, will EdF pursue at any cost its position in Italy's Edison, where currently it is limited to 2 per cent of the voting rights? The answer is an emphatic No. If EdF cannot achieve management control, he says, one option is to sell out. In Germany's EnBW, too, EdF is confident it will be able to negotiate management control without having to acquire majority control. The next big question is how EdF intends to foot the bill. The first source of funds is EdF's healthy cash generation, which at almost €4bn a year net gives the group some room for manoeuvre. Then EdF plans to raise €10bn from disposals, the most obvious of which is RTE, the regulated grid business. A stake in this business will be sold to another publicly-owned shareholder. Mr Gadonneix refuses to be drawn on other disposals, but these will almost certainly include EdF's troubled operations in Latin America. A second €10bn tranche will be funded through productivity improvements and tariff increases. EdF is counting on tariff increases to contribute €2.5bn of these gains. Of the balance Mr Gadonneix hopes that €3bn will come from closer integration of international operations on expenses such as purchasing, and €1.5bn from cost savings on staff. A third sum of €10bn is expected from next year's partial privatisation. But getting over that hurdle will be no easy task, particularly given the political controversy over its change in status. EdF will also have to compete for investor interest next year against the partial privatisations of Areva, the nuclear energy group and Gaz de France, Mr Gadonneix's former employer. The chief executive is aware that it will take more than his company's healthy cash generation to tempt investors. Progress will have to be made on his strategic plan if EdF is carry off what could be France's largest ever introduction to the market. But, he says, the state will also have to do its part to clarify the tariff regime. "It is a formidable challenge," he says. "But today the market can absorb this. Energy is back in fashion." That may be so. But the barricades outside his headquarters are a reminder of the constraints that risk derailing his strategy. 16.12.04

British Gas has lost almost one million customers this year, its parent company Centrica has revealed. The gas and electricity provider, which has put up prices twice in 2004, lost 290,000 customers in the first half of the year and 630,000 in the second. Centrica, which has been hit by a rise in wholesale energy prices, said market conditions remained challenging. Its shares closed 8.2% lower at 229.5 pence, despite Centrica saying annual results would meet expectations. Reduced margins Centrica said it expected to maintain double-digit year-on-year percentage growth in earnings for 2004, and added that 2005 results were also seen in line with market forecasts. Yet it warned that high energy prices remained problematic. "In summary, the key issue facing Centrica in 2005 is the current level of UK wholesale energy prices," the company said in a statement. "As a result operating margins are now expected to be lower than previously anticipated in British Gas, Centrica Business Services and industrial and wholesale." Earlier this year, the company sold its Automobile Association (AA) unit for £1.75bn ($3.35bn) to return cash to shareholders. Clive Roberts, an analyst at brokers Charles Stanley, said it was "clearly good news" that Centrica would be able to maintain margins at British Gas despite the challenging conditions. "They are clearly trying not to lose too many more customers and get churn under control by absorbing some of the cost," he added. Other providers According to industry watchdog Energywatch, UK gas prices have risen by 19.03% this year. It said that as a result, gas customers will now be paying £5.2bn more for their fuel this winter. "Use consumer power now and switch to another company," said Energywatch. "Customer loyalty isn't worth the bill it's written on." 13.12.04

Centrica, which sells gas under the British Gas brand, has warned that rising wholesale gas costs are squeezing its margins and so forcing it to consider raising domestic gas prices. The company raised bills by almost 6% in January 2004, but then saw its share of the residential gas market fall to 60% by July 2004 from 63% a year earlier. British Gas still has 12.3 million residential gas customers.13.12.04

British Gas owner Centrica has said that soaring energy prices will hit margins in some of its key businesses, sending its shares sharply lower. The company said on Friday that 2004 and 2005 results were seen in line with expectations, with rising gas production set to boost profits. However, operating margins elsewhere in the group were expected to fall. Political instability in the Middle East and oil supply disruptions in Iraq, Russia and Nigeria as well as increasing global demand, have sent energy prices soaring this year, increasing utility firms' cost base. "In summary, the key issue facing Centrica in 2005 is the current level of UK wholesale energy prices," the company said in a trading statement. "As a result operating margins are now expected to be lower than previously anticipated in British Gas, Centrica Business Services and industrial and wholesale," it added. Centrica shares were down 6.8 percent at 233 pence in mid-morning trade, the stock's lowest price in over a month. It was also the biggest loser on the blue-chip FTSE 100 . "It's a rather disappointing outlook," said F&C fund manager Michael Gifford. Gifford's portfolio includes Centrica shares, although he said he had sold some Centrica stock in the last month. "Centrica's problem is that it has to buy gas and electricity from the open market at high prices in order to top up its supply to customers," he added. Centrica was created in 1997 from the demerger of the former state-owned British Gas, the country's largest gas supplier. It expanded into areas beyond its utility roots, but has recently sold off some businesses to focus on its main gas business. 13.12.04

ScottishPower has increased their domestic online gas and electricity prices for new customers with effect from 7th December 2004. Energylinx lets you see how this affects your area. (PRWEB) December 7, 2004 -- ScottishPower has announced an increase in their online domestic electricity and gas prices, effective for new customers from the 7th December 2004. This latest price increase comes within a week of ScottishPower announcing that they were commence charging 135,000 gas customers who are on a non-Transco gas network an extra £40 per year. Although ScottishPower do have to pay this additional charge to the Independent Gas Transporters (IGTs) it will however net ScottishPower a further £5.4 million a year. This latest price hike, taking into account VAT and daily service charges, where applicable, means that an average ScottishPower Online customer who consumes 3,300 kWhs electricity and 19,050 kWhs of gas per annum will see their gas bills increase by an average 11.46% and electricity bills by 9.64%. With the domestic energy market at its most dynamic it is worth shopping around to find out whether or nor you have the best deal for your home energy. The actual differences in price between the lowest and highest suppliers are substantial. 8.12.04