The country's gas industry is on a knife edge this winter and could tip into crisis if there is a major breakdown in its ageing North Sea fields and pipelines, analysts said on Thursday. Europe's biggest consumer is fast running out of gas from the fields that once made it self sufficient and kept prices among the lowest in Europe. Today, UK gas is the world's costliest fuel and winter supply will be the tightest in memory. Government ministers are under pressure to explain how one of the world's richest nations has left its energy policy hostage to the weather and ageing North Sea equipment. "The crucial issue will be the unexpected happening in the North Sea," said Jonathan Stern of the Oxford Institute of Energy Studies. "North Sea kit is very old. Most was built between 1966 and 1986 and a lot is at the end of its life." Industry has already cut back output because of high prices and newspapers are raising the spectre of a return to the three-day working week seen in the power crisis of the 1970s. The government said on Thursday it was reviewing contingency plans. Energy Minister Malcolm Wicks told parliament he held talks with companies in the summer to check they were maintaining their North Sea infrastructure adequately. "I met representatives of the oil and gas industry... to make sure that they were doing the repairs and had the spares necessary to ensure that they were in the best possible position this winter," Wicks said. Ministers have conceded that if there is extraordinarily harsh weather, then gas supplies to some industrial consumers could be cut. They insist households will be protected. The greatest problem will be if there are breakdowns at large gas gathering terminals at St Fergus in Scotland and Bacton in Norfolk which process fuel coming onshore from North Sea fields, Stern said. "It has been such a long time since we have had any seriously cold weather for a prolonged period that we don't know how the electricity and gas networks will cope," he said. Some weather forecasters, including the Met Office, have predicted colder-than-usual temperatures this winter. British consumers used to enjoy among the lowest gas prices in the European Union, but costs have risen after oil prices surged and as the country becomes more reliant on imported gas through a pipeline from Belgium and in super-cooled tankers. But Britain's neighbours are often unable to sell into the UK market -- the most freely traded and competitive in the EU -- because their gas markets are controlled by dominant former monopolies locked into long-term contracts. Residential consumers, whose bills have climbed by more than 40 percent over the last two years, are gearing themselves for more price hikes. Import dependency has grown steadily since output from North Sea fields started to fall five years ago. More import projects are being built but most will only cone on stream in 2006 and 2007. The UK's gas output has fallen faster than expected, leaving a supply gap this year as most companies thought new supply would be needed in several years time. Imports rose on Thursday after a ship carrying Algerian liquefied natural gas (LNG) docked at the new Isle of Grain terminal near London. Gas traders say three more LNG cargoes are likely to be on their way to Britain in December as companies cash in on the high prices. 25.11.05

The Met Office has said there is a 65% chance of a much colder-than-average winter - something not experienced in a decade. A forecasting service used by many traders has predicted temperatures up to four degrees colder than usual in Britain and up to three degrees lower across the rest of western Europe. The onset of cold weather in the UK so early in the winter has further stoked fears among traders that there may be gas shortages. Over the weekend of November 19-20, overnight temperatures fell below freezing across Northern Europe, including the region's main market, Germany. Private forecaster AccuWeather has said the US Northeast, the world's biggest heating oil market, would see slightly lower than normal temperatures this winter. Where are energy prices heading? On November 22 the price of gas for delivery in January traded as high as £1.20 a therm. Spot prices for gas traded as high as £1.70 a therm, up from about 31p at the start of the month, making UK gas prices some four times higher than continental European prices. Unusually, November spot prices for gas have climbed even higher than those for the January contract, typically the coldest and most expensive month. Because gas is heavily used in Britain to generate power, the wholesale price of electricity almost doubled during the week to November 22. What are the supply problems? Until recently, a severe winter would not have posed a serious problem for the UK, which was able to meet demand by turning up production in its North Sea gas fields. However, North Sea gas production has been in decline for the past five years - last year the UK became a net importer of natural gas. Despite soaring UK gas prices, a gas pipeline between Bacton and Zeebrugge has been operating at less than half its capacity. Compressor problems in Germany are thought to have been partly responsible. Apache, the US oil independent, said it had closed a crucial North Sea pipeline for several hours on November 21 after a suspected gas leak, adding to supply fears. Several new pipelines and liquefied natural gas (LNG) terminals planned for the UK will not be ready for this winter. With prices so high, won't the market kick in? British gas prices were among the lowest in Europe over the last decade but they have risen sharply over the past year as the UK became a net importer. Moreover, many industrial end-users have signed supply contracts exposing them directly to the prices in the spot market, instead of relying on less volatile annual deals. In contrast, European companies buy gas on longer contracts and therefore don't face a sudden increase in their bills. Falling temperatures across Europe may also draw gas supplies away from the UK. However, many UK buyers also suspect that continental European operators are holding back gas supplies, accusing Europe of lacking a functioning market. The European Commission said this week that European gas and electricity markets were "malfunctioning" because of the influence of dominant gas companies, which hinder competition. Rising UK prices should now help attract LNG shipments to Britain, but the onset of winter in Japan raises the prospect that they could be lured to Asia instead. LNG shipments bound for Britain have also been diverted to the US and Spain over the past six weeks, where they have been fetching a higher price - up to $14m more per cargo to the US compared to the UK. As a result, Britain's first LNG terminal has been mostly idle since it opened in June. How badly are UK companies being hit? There are signs that British power stations and factories are turning down their production to reduce demand for gas. French-owned gas supplier Total, a major industrial provider in the UK, said on November 22 that demand was running at about 80 percent of expected levels. Chemical maker Ineos Chlor said on November 22 that it had cut its output by up to half. Terra Nitrogen, a leading chemical and fertiliser manufacturer, said on November 18 it had to import ammonia from elsewhere in Europe to supply its customers because high energy costs had caused it to scale back production. 24.11.05

In a forthright attack on its Continental neighbors, the UK government has blamed current high energy prices on nations that have failed to properly implement EU liberalization policies. Drawing on a recent investigation from EU authorities which highlighted a lack of commitment to implementing the 'spirit' of energy liberalization policy in Europe, UK energy minister Malcolm Wicks commented: "It's widely accepted that the lack of reform in EU markets, in spite of community directives, is keeping prices unnecessarily high for consumers." Mr Wicks said he would discuss the report when he chairs the next EU Energy Council in Brussels. A number of EU countries, including central players France and Germany, have allowed their former state incumbent energy companies to maintain a dominant grip on their domestic markets. The continued entrenched position of companies such as EDF, GDF, E.ON and RWE, coupled with some European governments' desire to artificially regulate prices, has stifled competition in the marketplace resulting in the limitation of new market entrants. However, while there is undoubtedly merit to Mr Wicks' position, industry commentators have suggested that the UK government is putting up a smoke screen to hide its own mismanagement of domestic energy policy. In recent years the UK has become increasingly dependent on gas both for fuel and as the main source for generating electricity at a time when North Sea gas supplies have dwindled and the country has become a net importer of gas for the first time. 24.11.05

The Government will today seek to deflect criticism of its energy policy by blaming soaring UK gas prices and the threat of supply shortages this winter on "serious malfunctions" in the European energy market. UK spot prices rose by more than 50% yesterday to 120p a therm. Production problems in two North Sea gas fields and cold weather were among the reasons cited by traders. But Malcolm Wicks, the UK energy minister, will tell a conference in London that lack of reform in Europe is the main culprit for keeping gas and electricity prices unnecessarily high across the EU. A report last week from the European Commission called on member states to "quickly and fully" implement EU directives to liberalise their energy markets. Mr Wicks will say he intends to put the commission's findings at the top of his agenda when he chairs an EU energy ministers council in Brussels next week. "I'll be looking for a full and frank discussion about how the EU can move the single-energy market forward on behalf of all its consumers and its vital industries," he will say. Centrica, the owner of the British Gas brand and by far the UK's biggest gas supplier, joined in the calls for a more liberal European market. It pointed out that while the spot price yesterday hit 120p in the UK and just over 100p in Zeebrugge - the other end of the gas interconnector between Belgium and the UK - in the Netherlands it was only 40p. Centrica blamed the wide variations on the fact that the gas transmission networks in continental Europe were owned by the same companies that sold gas, with the result that capacity was tied up in advance making it impossible to ship gas freely around Europe and into the UK. As evidence of this, Centrica said the interconnector from Zeebrugge was only 50% full yesterday, even though UK spot prices were the highest in Europe. The company along with the commission, wants the gas transmission networks in Germany, France and the Netherlands to be separated from the big incumbent operators who supply gas to create a competitive and transparent market and more realistic prices. Additional terminal and pipeline capacity is being built to increase shipments to the UK now that we have become a net importer of gas, but much of this will not be ready for another 18 months to two years. There are growing fears that the UK will run short of gas this winter, forcing supplies to industry to be rationed to ensure there is enough for the domestic market. National Grid, which owns the UK's gas transmission system, calculates that the country's 2,000 biggest gas users would have to cut consumption by 30% for a six-week period if there was a "one in ten" winter - the kind Britain experiences once in every decade. Last week, the Government ordered two independent studies into the ability of industry to cut demand by such a large amount and the impact that would have on the UK economy. One of these studies is being carried out by ILEX Energy Consulting. Another report by the company warns that because of the way the market works, the UK cannot rely on large gas storage facilities being built to ensure security of supply. The Rough gas storage facility, which is owned by Centrica, can hold three billion cubic metres or around 3% of annual UK demand. But the report, commissioned by the UK Offshore Operators Association, says that potential investment in a similar-sized facility is uncertain. It blames the "storage paradox" - when gas prices are low, nobody wants storage capacity and when they are high nobody can afford to build it. 23.11.05

Energy company Scottish Power has rejected a bid approach from German utility E.ON which would have valued the firm at about £11.3bn ($19.3bn). E.ON - which owns UK electricity and gas supplier Powergen - said it had ended bid talks after it failed to win the support of Scottish Power's board. E.ON said it was "surprised and disappointed" by the firm's reaction. Combining Scottish Power and E.ON's UK businesses would have created the largest energy supplier in the UK. Scottish Power supplies energy to 5.2 million users in the UK, while Powergen has about nine million UK customers. E.ON also owns the Central Networks distribution business, which combines Midlands Electricity and East Midlands Electricity, and supplies power to 4.8 million users. The German company first said it was considering a bid for Scottish Power in early September, and made its initial approach later that month. E.ON ultimately offered 570 pence per share - which would have valued the company at £11.3bn, assuming the exercise in full of all share options and the conversion in full of Scottish Power bonds into Scottish Power shares. In a statement Scottish Power said it had concluded the price "did not reflect fair value" of the company. E.ON chief executive Dr Wulf Bernotat said: "We are surprised and disappointed that Scottish Power has chosen to react to our proposal in this way. "We had worked hard to put forward a proposal that would have been fair and attractive to the shareholders of both Scottish Power and E.ON. "There is a compelling industrial logic to a combination of E.ON's UK business with Scottish Power - it would have been good for customers and shareholders alike." Experts said that while the German firm could return with another bid in six months' time, its decision to pull out of the current talks proved the "credibility" of its management. "They (E.ON) have always said they that they would not overpay for acquisitions and this appears to be proof of that," Peter Wirtz, analyst at WestLB, told us. News that takeover talks had ended pushed E.ON shares 2.65% higher to end at 80.65 euros, while Scottish Power sank 5.45% to 538p. The Scottish National Party's Holyrood leader, Nicola Sturgeon, said E.ON's announcement was "good news" for Scottish Power employees, consumers and shareholders. "I hope that the board of Scottish Power will now resolve to keep the company independent for the long term and resist any future bid in the same way that it has resisted this one," she added. But analysts believe that the power firm remains a takeover target, with some suggesting that E.ON's German rival RWE may step into the fray. Other bidders that could be waiting in the wings include fellow UK group Scottish & Southern Energy or French firm Electricite De France (EDF). 23.11.05

Wholesale gas prices have almost doubled in the past week, with the cold snap stoking fears about Britain's gas supply this winter. Gas for delivery the next day touched 80p a therm yesterday – up from about 43p a week ago – before dropping back slightly. It was the highest price in eight months. Niall Trimble, chief executive of the Energy Contract Company, a consultancy, said: “It's the cold weather so early in the winter. There are fears among traders that we're going to run short in a cold winter.” For traders already concerned about the tight gas supply this winter, there have been several ominous signs this week. Operators have begun to draw gas from the country's largest store – a highly unusual event so early in the year. The Rough offshore storage facility is normally filled at this time for use in January and February, traditionally the coldest months. Shipments of liquefied natural gas bound for Britain have also been diverted to the US and Spain over the past six weeks, where they have been fetching a higher price. A new import terminal at the Isle of Grain in Kent is thought to have been idle since early October. According to Frank Harris, a gas analyst at Wood Mackenzie, operators could have made up to $14m more per cargo by selling it to the US rather than the UK over the past couple of months. Rising UK prices should now help attract LNG shipments to Britain, he said. However, the onset of winter in Japan raised the prospect that they could be lured to Asia instead. Finally, a reversible gas pipeline between Bacton and Zeebrugge has been operating at less than half its capacity, despite soaring UK prices. Compressor problems in Germany are thought to have been partly responsible for the lack of gas flowing from the Continent. But many UK buyers also suspect that continental European operators are holding back gas supplies. Centrica, the country's largest wholesale gas buyer, said: “We've certainly been concerned at the high prices since the weekend and of limited gas coming through the interconnector despite positive price signals. We'll be keeping a firm eye on whether the lack of a functioning market in Europe has impeded gas being sent to this country.” The European Commission said this week that European gas and electricity markets were “malfunctioning” because of the influence of dominant gas companies, which hinder competition. If the UK suffers an unusually cold winter, the operator of the gas pipeline network has said that some heavy industrial users and power plants may have to be cut off. The Met Office has said there is a 65 per cent chance of a colder-than-average winter, something not experienced in a decade. Britain is having to import an increasing amount of natural gas, as its own supplies from the North Sea dwindle and demand keeps on rising. Several new pipelines and LNG terminals are under construction to bring more gas to Britain but they will not be ready in time to prevent the gas supply this winter and next from being among the tightest in living memory. 18.11.05

UK gas and electricity supplier Scottish and Southern Energy (SSE) has seen strong growth over the six months to September 30, 2005, with pre-tax profit for the period up 25.5% to GBP336.3 million. In explaining the good results the company pointed to growth in its generation and supply operation, which has benefited from a series of acquisitions in recent months, including the purchase of the Fiddler's Ferry and Ferrybridge power stations in northern England. SSE now intends to spend GBP225 million on upgrading its coal fired stations to help meet carbon emissions standards - this will largely be achieved through fitting flue gas desulphurization equipment. However the utility is set to increase retail tariffs by up to 13.6% from the start of 2006 as it battles to combat rising wholesale costs and carbon trading fees. Commenting on the results, chief executive Ian Marchant said: "SSE's focus has always been, and remains, the delivery of sustainable long-term real dividend growth. We have consistently sought to achieve this by maintaining and investing in energy networks, adding to our generation portfolio, growing our energy supply business and developing further our presence in contracting, connections, gas storage and telecoms. "We will maintain this approach, and our emphasis on strong operational performance, for the rest of this financial year and beyond. The prospects for sustained real growth in the dividend remain excellent." 17.11.05

The European Commission has threatened to take action to free up the European wholesale markets for gas and electricity. It said it had found a lack of competition and other serious problems. The Commission blamed this mainly on the dominance of supplies by a few national gas and electricity companies. Its investigation started this summer after UK energy companies complained they were being forced to buy wholesale gas at excessively high prices. Since the start of 2003 the wholesale price of gas has doubled. As a result households in the UK have seen their gas prices rise by about 40% in the same period. And with gas used to produce about 40% of the UK's electricity output there has been a big knock-on effect on electricity users as well. UK energy suppliers have blamed this situation on the fact that they have been importing increasing quantities of gas from the continent. This has been partly because of ever increasing demand from UK users and partly because of declining output from the UK's own North Sea gas fields. The UK's own energy regulator Ofgem investigated spikes in the price of gas that took place in October 2003. Its report, published in 2004, did not find any evidence of anti-competitive behaviour. But it did point to problems with the transportation of gas across Europe to the UK. Today, Ofgem's chairman Sir John Mogg demanded urgent action by the European Commission: "Our consumers and businesses are paying a high price for the lack of competition in most continental energy markets," he said. "This is why anti-competitive practices must be stamped out and effective rules of the game introduced and properly policed." The preliminary results of the Commission's investigation say there are a number of ways in which European energy companies strangle competition and keep prices high.

• Energy markets in many European countries are dominated by national or regional monopolies, often involved in production, transportation and supply
• These companies, some state owned, strike private long term deals to supply each other with gas
• The contracts they strike hinder the ability of other companies to ship gas across national boundaries
• The wholesale markets for gas and electricity are opaque
• The wholesale price of gas on the continent is still, for historical reasons, linked to oil prices - unlike in the UK.

The Commission doesn't use phrases such as "rigging the market" or "price fixing". But it does say that "gas and electricity prices in many member states continue to be concentrated, creating scope for incumbent operators to influence prices". The European Commission is continuing its inquiry and will now decide what to do. It threatened to take action against energy companies, using its powers to ban restrictive business practices and abuse of any dominant market position. Speaking on BBC Radio 4, Mark Clare, the managing director of Britsh Gas, demanded change: "We need access to the European infrastructure, their networks. Liberalisation has not succeeded yet." "As a result UK customers are paying substantially more - as much as £10bn a year," he said. In theory the Commission could fine offenders up to 10% of their annual turnover or even demand they be broken up. The final results of the inquiry will be published in the second half of 2006. 16.11.05

Energy company Npower today announced double digit price hikes for its electricity and gas customers. The cost of electricity will rise by 12%, while gas will cost 13.7% more. Customers on the dual fuel packages will see the cost of energy rise by 24p a day. The increases will take effect for the company's six million UK domestic customers from January 1 2006. Npower blamed a rise in wholesale gas costs over the past year for the increases and said its customers had benefited from its decision to hold prices earlier in the year. "All the other major suppliers have announced price increases in the last few months," said David Threlfall, chief executive of Npower retail. "In contrast, all Npower customers have had their prices frozen since October 2004 and they will not see any increase until the new year. We estimate this has saved a typical customer about £40". "We know, of course, that any increase is unwelcome and we try wherever possible to help customers reduce their bills." Mr Threfall claimed that even after the price rises, half the homes in the UK could still save money by switching to the new Npower tariff. And vulnerable customers will benefit from a £35 fuel bonus if they use the company to provide both their electricity and gas. However the consumer group Energywatch said an average Npower customer not on a direct debit scheme will pay an extra £58 for gas and £38 for electricity a year. Adam Scorer, Energywatch's director of campaigns, said: "We're also concerned that npower consumers on prepayment meters (PPM) are losing out. By switching to another company a consumer on a PPM could save £76." Earlier this week customers of Scottish and Southern Energy learned that they would face similar price increases, also coming into effect at the start of the new year. Prices for electricity customers are set to rise between 8.9% and 12% and the price rise for gas customers will be 13.6%. Today the Labour MP Mark Lazarowicz put forward proposals to reward households who generate their own sustainable energy with lower council tax bills. Introducing a climate change and sustainable energy bill to the House of Commons, Mr Lazarowicz said the public could play a huge role in fighting climate change by equipping their homes with solar panels, wind turbines and other equipment. "But efforts to boost micro-generation would be useless unless the government acted to make it affordable for everybody," he added. 14.11.05

Scottish Power has been ranked bottom of the class in a survey of customer satisfaction about gas and electricity suppliers. The firm, which yesterday announced a 45 per cent jump in profits and faces a takeover by rivals, was ranked among the worst in Britain by industry analysts JD Power and Associates. The Glasgow-based utility supplier, which has three million customers north of the Border, has already been warned by the watchdog Energywatch Scotland to "raise its game" after a 52 per cent rise in complaints about billing in the first six months of this year. Meanwhile a Labour MSP yesterday voiced fears that customers and workers could lose out if the energy giant is taken over by the German utility firm E.ON or Scottish & Southern Energy, which owns Scottish Hydro-Electric. Charlie Gordon said that, in the event of a formal bid, he was likely to refer it to the UK's competition authorities. Mr Gordon, the member for Glasgow Cathcart, was speaking in an energy debate in Holyrood. Richard Lochhead, a Nationalist MSP, had previously urged ministers to fight to maintain the "independence" of ScottishPower and resist a foreign takeover. The power firm - which recently introduced a £60 million savings target which will see 450 jobs go over the next 18 months - employs 2,000 workers in Mr Gordon's constituency alone and 6,000 staff throughout Scotland. The J D Power survey, which is based on 2,609 interviews with domestic electricity customers and 2,031 interviews with domestic gas customers, ranked ScottishPower the worst electricity supplier in Britain, with a score of 709 points - below the national average of 715 - and the second-worst gas supplier, with 724 points - well below the national average of 747. Scottish and Southern Energy came out top in electricity, while British Gas came out top in gas. But Gunda Lapski, the director of UK utilities studies at J D Power, said overall customer satisfaction with energy companies had improved in the past year. "ScottishPower has slipped because its performance in relation to its value for money has changed. Consumers see more than just the price - they also see long-term value and good service," she said. A spokesman for ScottishPower said: "We take customer service very seriously and use our own bespoke satisfaction surveys to drive improvements and this will continue. More importantly, we have gained around a million new customers in the past 18 months, so we are clearly doing something right. " Speaking in Holyrood yesterday, Mr Gordon said: "An autonomous future for ScottishPower is still a viable option. Let's not overlook that option, let's not make a takeover a self-fulfilling prophecy." He told the chamber he recognised that ScottishPower directors had a duty to shareholders to consider any appropriate bid. But he continued: "Such a bid would inevitably increase the worries that my constituents feel. For my part I can never view with equanimity the practice whereby with a stroke of the accountant's pen the lives of hundreds of hardworking families may be blighted." And he added: "Consumers too would have something to fear from the success of such a bid with its consequent diminution of competition. "An E.ON acquisition could result in a company with 30 per cent of the UK market. And for that matter a Scottish Southern Energy acquisition could lead to a virtual monopoly here in Scotland. I therefore wish to make it clear that in the event of a formal bid emerging for ScottishPower, I am very likely to refer it to the UK's competition authorities." 14.11.05

Scottish & Southern Energy (SSE) has said it will increase its prices for domestic electricity and gas customers from January next year. It said it would raise prices by between 8.9% and 12% for electricity and 13.6% for gas customers. The company blamed higher wholesale gas and electricity prices for the rise. Power watchdog Energywatch said the timing of the rise was poor, coming just after Christmas, which was an expensive time of year for consumers. The last time that SSE put up its prices - in February - it promised it wouldn't increase prices again until at least 2006. The firm said that it had no choice but to increase prices when the time constraint expired. "The pressure of high wholesale prices cannot... be withstood indefinitely and we have come to the point where these price rises are unavoidable," said Alistair Phillips-Davies, SSE's energy supply director. In recent months, Powergen, EDT Energy and Scottish Gas all increased prices. High oil prices has been the main reason for the higher charges. This has driven up the price of gas imported from the continent, where the wholesale price of gas is linked to the price of oil. In turn, this has made it much more expensive to generate electricity in the UK's gas-fired power stations. 10.11.05

A New twist in the takeover saga of ScottishPower sent the energy supplier's shares surging yesterday. The 3% boost to Scottish-Power's stock, up 18p to 578p, came after weekend speculation that rival utility Scottish & Southern Energy (SSE) was in the frame as a potential merger partner. Powergen owner E.On was also thought to have begun formal takeover talks with Scottish Power, which supplies more electricity to Merseyside homes than any other provider. Interest in the utility, which took over Manweb several years ago, began in September when E.On confirmed to the London stock exchange it was considering its options regarding a possible offer. Analysts said the move could be worth up to £12bn. An announcement on the latest developments could be made on Thursday when both Scottish Power and Germany-based E.On are due to report financial results. The emergence of a tie-up between SSE and Scottish Power - potentially creating a company worth £19bn - would alleviate political concerns in Scotland over one of the country's biggest corporate names coming under foreign ownership. But this too could have problems getting past energy regulators. Between them, Scottish Power and SSE account for about 70% of Scotland's gas and electricity customers. Scottish Power has been seen as vulnerable to a takeover since May, when it agreed to sell US subsidiary Pacificorp for £2.9bn to Mid-American, the energy business controlled by billion-aire financier Warren Buffett. It achieves more than half of its business outside its heartland north of the border and posted profits of more than £596m last year. SSE, which owns Southern Electric, Scottish Hydro Electric and Swalec, employs 10,000 people in the UK and claims to be Britain's largest generator of energy from renewable sources. E.On sells electricity and gas to around 9m customers in the UK through its Powergen brand. The company also owns the Central Networks distribution business, which combines Midlands Electricity and East Midlands Electricity, and brings power to 4.8m customers in the region. 9.11.05

The bid battle for ScottishPower intensified yesterday after it emerged that its neighbour north of the border, Scottish & Southern Energy, has retained advisers with a view to making a possible offer. S&SE has appointed the investment bank CSFB to evaluate a potential merger with ScottishPower, which is already being courted by E.ON, the German utility which owns Powergen. It is thought unlikely, however, that S&SE's chief executive Ian Marchant would wish to become embroiled in an auction with the Germans, who have already said that any offer is likely to be in cash. "E.ON has such deep pockets that it is unlikely anyone would want to go toe-to-toe with them," said one observer. E.ON and ScottishPower have held talks both directly and through their respective financial advisers and are understood to be discussing a price range of 600p to 650p a share, which would value the Scots company at up to £12bn. Its shares closed last week at 560p. ScottishPower and E.ON are both due to publish results this Thursday and while they could unveil a deal then, an announcement this week is thought unlikely. One source said the talks were still at an "early stage" even though E.ON was flushed out by the Takeover Panel more than two months ago and forced to issue a statement confirming its interest. S&SE's interest is thought to lie in making an approach to ScottishPower should the talks with E.ON end in failure. S&SE would probably seek to pay predominantly with its own shares but would almost certainly balk at making an offer in the 600p to 650p range. A merger of the two Scottish companies would also face daunting regulatory hurdles as it would give them about 70 per cent of the energy supply market north of the border and a complete monopoly on distribution and transmission of electricity. Political opposition would be limited due to the fact that a merger would create a Scottish "national champion" whereas a takeover of ScottishPower by E.ON would mean yet another UK energy company disappearing under foreign control. The three other big players in the UK energy market - Centrica, which owns British Gas, Germany's RWE, which owns Npower, and Electricité de France, which owns London Electricity and Seeboard - have all but ruled themselves out of bidding for ScottishPower. The company has been a takeover target since it announced the $9bn sale of its US division, PacifiCorp, to Warren Buffett in May. The disposal resulted in a loss for ScottishPower of nearly £1bn, since when the future its chief executive Ian Russell has been in doubt. He stands to make up to £9m if the E.ON deal goes through. ScottishPower is being advised by Morgan Stanley and UBS while E.ON has retained Lazards. Nobody from ScottishPower, E.ON or S&SE was prepared to comment yesterday. The bid battle for ScottishPower intensified yesterday after it emerged that its neighbour north of the border, Scottish & Southern Energy, has retained advisers with a view to making a possible offer. S&SE has appointed the investment bank CSFB to evaluate a potential merger with ScottishPower, which is already being courted by E.ON, the German utility which owns Powergen. It is thought unlikely, however, that S&SE's chief executive Ian Marchant would wish to become embroiled in an auction with the Germans, who have already said that any offer is likely to be in cash. "E.ON has such deep pockets that it is unlikely anyone would want to go toe-to-toe with them," said one observer. E.ON and ScottishPower have held talks both directly and through their respective financial advisers and are understood to be discussing a price range of 600p to 650p a share, which would value the Scots company at up to £12bn. Its shares closed last week at 560p. ScottishPower and E.ON are both due to publish results this Thursday and while they could unveil a deal then, an announcement this week is thought unlikely. One source said the talks were still at an "early stage" even though E.ON was flushed out by the Takeover Panel more than two months ago and forced to issue a statement confirming its interest. S&SE's interest is thought to lie in making an approach to ScottishPower should the talks with E.ON end in failure. S&SE would probably seek to pay predominantly with its own shares but would almost certainly balk at making an offer in the 600p to 650p range. A merger of the two Scottish companies would also face daunting regulatory hurdles as it would give them about 70 per cent of the energy supply market north of the border and a complete monopoly on distribution and transmission of electricity. Political opposition would be limited due to the fact that a merger would create a Scottish "national champion" whereas a takeover of ScottishPower by E.ON would mean yet another UK energy company disappearing under foreign control. The three other big players in the UK energy market - Centrica, which owns British Gas, Germany's RWE, which owns Npower, and Electricité de France, which owns London Electricity and Seeboard - have all but ruled themselves out of bidding for ScottishPower. The company has been a takeover target since it announced the $9bn sale of its US division, PacifiCorp, to Warren Buffett in May. The disposal resulted in a loss for ScottishPower of nearly £1bn, since when the future its chief executive Ian Russell has been in doubt. He stands to make up to £9m if the E.ON deal goes through. ScottishPower is being advised by Morgan Stanley and UBS while E.ON has retained Lazards. Nobody from ScottishPower, E.ON or S&SE was prepared to comment yesterday. 9.11.05

Scottish & Southern Energy has been linked on UK television with an advertising campaign to recruit 'troublemakers'. Rising prices and profits, exacerbated by negative advertising and a past history of sharp sales practices, mean that the public perception of the residential energy sector is grim. At the same time the big suppliers talk of becoming consumer orientated service providers, but if they are to escape their status as pure commodity suppliers they must urgently improve the industry's public image. The public perception of gas and electricity utilities is at a low ebb. Underlying this has been the unrelenting rise in prices and annual fears about cold winters and energy shortages, which sounds even worse when shareholders are rolling in money as a result. Public fear and ignorance have been a short-term boon for many utilities, which have been able to play to these fears and encourage consumers onto capped price products. However, these have recently been accompanied by negative advertising tactics too, which may sell contracts, but for the wrong reason and sometimes by fuelling fears about the motives of rival suppliers and their salespeople. The industry has a poor track record concerning mis-selling so it is easy to persuade people that rival sales agents disingenuously offer low prices that will soon be rising. Consumers then find it harder to believe that future price rises are an honest response to tight wholesale markets. When seen in this light, Scottish and Southern Energy's (SSE) latest publicity howler does not surprise (a sales agency retained by SSE placed adverts aimed at recruiting 'chancers' and 'troublemakers' to join its doorstep selling staff). It is hard to fault the company: complaints about it as a proportion of customer transfers are some of the lowest in the sector and it asked the agency to remove the adverts as soon as it found out about them. An Energywatch spokeswoman was quoted by the Independent newspaper saying that SSE was the subject of double the number of complaints expected for a company its size, as if complaints should be relative to market share rather than sales activity. This kind of logic should not make it into the national press, but it does because it makes a good story. Equally, it fits with what people believe, and this is a problem for the industry as a whole, not just SSE. Residential suppliers are never going to move away from a purely price-driven commodity market and stress things like customer partnerships, product tailoring and loyalty while their public image is so low. 5.11.05

Scottish & Southern Energy tops customer satisfaction among electricity suppliers, says the UK's largest independent energy study. But ScottishPower performed poorly, ranking bottom among electricity providers and only managing one position better in the gas rankings. The report by JD Power revealed a fifth of consumers were still unaware of whether their supplier had increased prices in the last 12 months. 2.11.05

The Construction Products Association has slammed increases in energy prices and blamed gas providers for driving production out of the UK. Energy prices for heavy users, such as cement, brick and glass- makers, have tripled over the past three years and are double the price of 12 months ago. Speaking at the Construction Products Association autumn lunch, president Roy Harrison said the sector faces “unprecedented increases”. “It's not a sustainable solution that companies are driven out of the UK to countries with less sustainable standards. The rise in oil prices hasn't helped, but it's not the only reason why we pay the highest rate in the European community.” Harrison called for the Department of Trade and Industry to present the case for industry “as forcibly as possible” to the government. Corus suffered a 40% increase in energy prices this year. A spokesman told CJ: “Variability is a big concern for us as it affects our budgets.” Energy Intensive Users Group director Jeremy Nicholson said that problems with energy costs are particularly acute for UK manufacturers. “In the past three years we've gone from being very competitive to being the highest for gas prices and among the highest for electricity in Europe,” he said. Nicholson said energy costs are 45% more than on the continent and many manufacturers are taking a hit on the increases instead of passing on the costs. He added: “Some of these costs will be passed on to the consumers of these products. Because the increase has been so much larger in the UK than in Europe, cement, steel or brick firms aren't able to pass on all these costs and remain competitive internationally. It puts UK manufacturers in a very difficult position.” Nicholson agreed with Harrison that energy price hikes will drive business overseas. “There comes a level where it starts to become attractive to import. Steel, aluminium and glass are already in an international market, and if the costs go up, the higher the attractiveness of buying these products from other countries,” he said. An Ofgem spokesman told CJ: “On the continent they haven't opened their energy markets up to the competition. We enjoy one of the most competitive markets in the UK.” 2.11.05

RWE npower means to capitalize on Centrica's recent price with Gas Guardian, which appears at first glance to be a riskily cheap capped tariff. However, closer inspection reveals that it will maintain a standard differential against Centrica. Nevertheless, this will be a well-publicized gift to Centrica gas only customers and will surely tempt many of them. Centrica lost approximately 800,000 gas accounts between August 2004 and August 2005, presenting rival suppliers with an excellent chance to boost their customer numbers. Unfortunately for RWE npower, it was Scottish and Southern Energy and ScottishPower that profited, gaining approximately 350,000 gas accounts each whereas RWE npower could only claim 100,000. Yet it seems determined not to be left behind now that Centrica has raised its prices again. Hence Marketing reports that it is launching a product called Gas Guardian, which will tie gas prices to Centrica's pre-rise price until 2007. Since there is no dual fuel version, this is clearly aimed at Centrica's large core of gas only customers, (currently about 6.5million of them), and will be backed up by a multi-million pound advertising campaign. This sounds risky given that most of Centrica's rivals are already losing money on each gas customer, but a closer look at the figures suggests that Gas Guardian will not be unusually costly compared to typical price differentials against Centrica. Taking Eastern as an example region, the current Centrica price for an average consumer (20,500kWh) paying through a standard credit channel is £515. Given that prices rose by 14.2% in September, Centrica's previous price would have been £451, which is therefore the price at which RWE npower is fixing the Gas Guardian price. However, the current gas only price from RWE npower is £402, so prospective customers are effectively paying at least a £49 premium over the normal price. Therefore the product is not a great deal for existing RWE npower customers but does offer a 12.5% discount to Centrica's gas only customers. This is clever marketing: a capped tariff at a time when they are popular, better value than Centrica's own capped tariff, but at a price that will not bankrupt RWE npower. If it is promoted properly it will surely tempt some of Centrica's customers, to whom RWE npower can market electricity when Gas Guardian expires. About Npower: Rwe npower generates electricity and supplies gas, electricity and related services to around six million customers through its retail business, npower. The company operates and manages a flexible portfolio of power stations through its operations and engineering arm, and is a market leader in renewable energy development through its wind and hydro business, npower Renewables. npower is one of the UK's top three energy suppliers and has 50 years of experience. npower business is a leading supplier to the UK business market, serving over 300,000 small to medium sized enterprise sites and around 20,000 industrial and commercial customers, with over 100,000 sites. In 2004, RWE npower became a Percent Club member for the second time. It is one of only 152 companies nationwide to invest more than 1% of its pre-tax profits into the communities in which it operates. 31.10.05

A nationwide campaign to reduce greenhouse gas emissions began in Britain on Monday, with the focus on encouraging people to switch off electric equipment rather than just leave them on standby. The Energy Saving Trust, a leading organization in delivering energy to governmental, domestic and business sectors, calls on people to try to reduce their energy consumption by 20 percent through simple measures such as turning off televisions, PCs and DVD players after using them, instead of leaving them on standby. An investigation carried out by the organization indicated that office workers who leave computers on standby are costing Britain 123.2 million pounds (210 million US dollars) a year in energy bills. More than one third of these people still fail to turn off their computers when not in office. Energy campaigners say the "standby culture" is responsible for one million tons of carbon being pumped into the atmosphere every year. Home computers emit 220,000 tons of carbon dioxide as a result of standby. "People seem to think that if they put stuff on standby, it is saving their money and electricity, but that just isn`t true. A computer or television on standby will still be using 90 percent of the energy that it would if fully turned on, and that is a massive resource in terms of carbon dioxide emissions," said a spokeswoman for the Energy Saving Trust. 31.10.05

Livewire contractors ensured Cowes Power Station was back at full power ahead of schedule after repairs costing nearly £4 million. It was re-opened last Friday, more than five years after a catastrophic failure and fire destroyed one of the power station's two generators. Work to return Cowes Power Station to full generating capacity started in the spring of 2004. It returned to commercial operation on June 24 this year — five years to the day after the fire, five months ahead of schedule and on budget. To mark the re-opening, owner RWE npower donated £5,000 to sponsor an Island youngster on one leg of Gipsy Moth IV's round-the-world voyage. Guests at the re-opening by Island MP Andrew Turner included Gipsy Moth global project manager David Green, IW Council chairman Cllr John Effemey and East Cowes mayor Cllr Peter Lloyd. It was in June 2000, during testing of the Unit 2 generator that a traumatic failure stopped the rotor — which was running at 3,200 rpm — within half a revolution. Site engineer Murray Jones said: "That led to a massive amount of energy being dissipated within the rest of the machine, catastrophic failure and a subsequent fire, resulting in devastation of the unit." Since then the station, which provides short-term boosts for the National Grid at times of shortfall, has been running on just one generator. It is the only major power generator on the Island. Each Rolls Royce Olympus gas turbine produces up to 70 megawatts of power within five minutes of starting up. Npower, which has 6.2 million UK customers for electricity and gas, has major power stations throughout the country, including that at Fawley. Gas-oil fuel for Cowes is mostly sourced from there. Three people are employed at the Cowes site, which has a long history of power generation. A coal-fired power station was first built on the site in 1927, its initial three megawatts increased to 12 mgw in the 1940s, then to 35 mgw until 1971. The coal station was closed and demolished in 1976 and six years later, the gas turbine station was opened.
31.10.05

Thames Water, the UK's biggest water company, is to be floated on the stock market again in a deal which is likely to value the business at about £9bn. RWE, the German utility which owns Thames and American Water Works, the largest water company in the US, is planning to list up to 30% of the two businesses through an initial public offering, raising about £3bn. News of RWE's plans immediately sparked renewed speculation that it may bid for a UK energy company. RWE, which already owns Npower, has all but ruled itself out of an offer for ScottishPower but analysts believe it could bid for Centrica, the owner of the British Gas brand. According to reports from Germany yesterday, the RWE board is due to meet on Friday to approve the spin-off of Thames Wasser, as it is now known. Thames Wasser is the parent company for both Thames and American Water Works. It is not clear where the flotation would take place, although bankers said a listing in London or New York was more likely than one in Frankfurt. RWE bought Thames for £6.8bn in 2000 in a move which valued the company at a record price. It followed up the deal with the £4.2bn acquisition of American Water Works a year later in September 2001. A spokesman for RWE refused to comment on the planned re-listing of Thames. However, he added: "RWE regularly reviews its portfolio of businesses and its strategy in light of developments in the market place." The idea of spinning off Thames is said to have been hatched by Thomas Fischer, the chairman of RWE's supervisory board. Mr Fischer is also chief executive of WestLB, the German bank which is tipped to handle the share offer. Analysts said that it made sense for RWE to re-invest the proceeds in the electricity and gas markets where profit margins are higher because of soaring wholesale energy prices. But RWE would not be the first company to discover that a multi-utility strategy did not work. ScottishPower itself bought Southern Water, only to sell it off subsequently at a £1bn loss. Thames Wasser accounts for 18% of RWE's turnover and made a €619m (£420m) operating profit in the first half of the year. In the UK, Thames Water has 8 million water and 13 million sewage customers and has been given permission by the industry regulator to raise bills by a quarter over the next five years to an average of £261 per household. American Water Works, which is based in New Jersey, has 10 million customers in 23 US states. 26.10.05

Tankers laden with liquefied natural gas (LNG) have started docking at a new terminal near London as Britain boosts its gas imports to make up for sliding output from maturing North Sea fields. Three cargoes from Algeria, each carrying enough gas to supply London for nearly a week, have landed at National Grid's Isle of Grain terminal on the Thames Estuary since it opened in July, plant officials said on Thursday. Grain's imports of LNG, Britain's first for twenty years, will help ease concerns that a freezing winter could stretch gas supplies. UK gas supplies are tightening as North Sea flows drop. Forecasters this week warned the country to prepare for the coldest winter for a decade. “The grid has some concerns about this winter,” said Grain LNG site manager Ian Belmore. “Grain being available gives some comfort,” he told Reuters at the plant. LNG is natural gas frozen into liquid form. On arrival at Grain it is processed back into normal gas and pumped into the national pipeline network for use by consumers. LNG coming into Grain is for energy major BP and Algerian state producer Sonatrach which own all the import capacity available under phase one of the terminal. National Grid are to build a second phase which will triple throughput to 10.5mn tonnes a year – about 12% of UK gas demand – by the winter of 2008. The second phase capacity has been bought by Centrica, Gaz de France and Sonatrach. The Grain terminal is set up to receive one cargo a week but that volume has yet to be reached as suppliers have steered cargoes to more attractively priced markets like Spain and the US, according to industry sources. “We can expect more ships to load into the Isle of Grain during the winter because of peak demand,” said David Cox, the managing director at Ilex, a U.K. energy consulting group, in a phone interview. “BP and Sonatrach have the option to sell the shipping slots if they don't use it so we may see other suppliers coming into the U.K. gas market.” Technical advances have forced down the cost of LNG, kicking off a global commodity market. LNG is potentially available from around the world,” said Ian Davis, director of Grain LNG. “UK gas demand is expected to grow by 15% in the next 10 years, by 2010 imports (of LNG and pipeline gas) will make up 50% of all gas (in the UK).” National Grid is the first of three LNG import projects to be developed in response to Britain's tightening market. Two plants are to be built at Milford Haven in South Wales by 2007, importing LNG from producers including Qatar and Egypt. The UK Office of Gas and Electricity Markets, or Ofgem, which regulates the industry, said gas imports in the six months through March into Grain may reach 17mn cu m a day from a “base case” level of 13mn cu m. 24.10.05

Britain's Drax Group has rebuffed a £2 billion bid approach for Europe's largest coal-fired power plant from Britain's International Power Plc and Japan's Mitsui & Co Ltd. Drax, which is running an auction for its possible sale alongside preparations for a possible initial public offering, has also turned down bids pitched at similar levels from two U.S. consortiums. International Power shares fell as much as 8%, and at 11:50 GMT were down 4.4 percent at 217-1/2 pence. "The concern is what they might have to pay for it, and how they might fund it," said Angelos Anastasiou, an industry analyst at Williams de Broe, though he added the Drax power station would be a good fit with International Power's business. Drax, which supplies 7% of Britain's electricity needs with its giant 4,000-megawatt plant in Yorkshire, northern England, said the approach from International Power and Mitsui gave it an enterprise value of around 2 billion pounds, which "significantly undervalues" the company. Last week, Drax said a U.S. group led by private equity firms Apollo Management, Texas Pacific Group and TowerBrook Capital Partners had made an approach worth £2.07 billion. Prior to that, it received an approach worth around £1.9 billion from a group involving U.S. power group Constellation Energy and U.S.-based hedge fund Perry Capital. Drax said both of these bids also undervalued it. The firm has now asked all parties including International Power and Mitsui to submit their final and firm bids in early November, when it will decide whether to sell itself to a suitor or go ahead with a planned flotation. Drax is hoping a bidding war will lift any eventual sale price above 2.5 billion pounds, nearly three times the level the plant was estimated to be worth more than a year ago before electricity prices started to soar. International Power, which moved into the benchmark FTSE 100 index earlier this year, has been snapping up generating assets in recent years, some with joint venture partner Mitsui. Last year, it bought 13 power plants from U.S. utility Edison for $2.2 billion as well as the Portuguese Turbogas plant from German utility RWE for 205 million euros ($245 million). A Drax spokesman said the International Power and Mitsui approach was for the whole plant but that some existing shareholders could retain an interest if any deal were made. Mitsui & Co, Japan's second-biggest trading house, has previously been involved in joint ventures with International Power, which analysts say usually has International Power taking the controlling interest. The Drax plant is owned by a group of banks after its former owner, U.S. utility AES Corp., withdrew financial support following a slump in UK power prices. However, surging oil prices and dwindling North Sea reserves have sent energy prices in Britain rocketing since then, spurring a fresh wave of investment interest in the sector. One of Britain's newest power stations, Drax was commissioned in the mid-1970s and is already fitted with anti-pollution systems, which will help it meet tightening rules on greenhouse gas emissions. Constellation Energy and Perry Capital are using Lazard as financial adviser and CSFB to arrange the necessary debt financing. Lehman Brothers and UBS are advising Apollo, Texas Pacific and TowerBrook. Deutsche Bank is advising Drax. 20.10.05

Sun Microsystems has had electricity bills at its Linlithgow manufacturing plant raised 144%, a set-back the group fears will disrupt ambitious expansion plans over the next two years. The company - which makes computer servers at the facility - said it had been told by supplier ScottishPower that it would have to pay about £1.6 million a year for its power from next year, up from £650,000 currently. The jump adds a major cost to the group's overheads, just as Hugh Aitken - who runs the plant - is seeking talks with Scottish Enterprise and the major utilities in a bid to "expand the group's manufacturing portfolio" and customer base. He wants to boost the company's utilities infrastructure in order to win more IT business from Scotland's biggest potential customers, including Royal Bank of Scotland and the Scottish Executive. Aitken said: "We would offer to take the services provided by their data centres, and sub-contract it into the Linlithgow plant. It would add millions in revenue - but we can't do it if utility bills are going to go up 144% ." He said that although the plans were looking 18 months to two years ahead, a failure to put them in place could prove a major challenge for the computer manufacturer - with the potential consequences of shifting some work overseas. Sun signed a two-year deal to take electricity from ScottishPower two years ago, but the rising price of wholesale power - both gas and electricity - forced the utility to up its prices when the contract was re-awarded. A spokesman for the Glasgow firm said: "Gas has gone up by 67% since March. As with domestic customers, this means prices will go up for our big industrial customers as well. We have been working with them to try to offer the best deal." The gas and electricity price rises have effected firms across Scotland and the UK this year - although the extent differs depending on geographic location and size of business. A spokesman for the Federation of Small Businesses said: "The increasing costs will hit both productivity and profitability." The typical advice to those suffering higher bills is to shop around for a new supplier, but the spokesman added that some companies may be reluctant to do this because of "uncertainty of cash-flow". Aitken's plans to boost his utility capacity is expected to be discussed at a pre-Christmas meeting chaired by Scottish Enterprise chief executive Jack Perry. Aitken said the quango chief was "pumped up" about the plans, and that representatives from BT, Scottish Water and the major utilities would be involved. However, one energy source suggested Sun could branch out into renewable energy, which would boost the capacity of the plant without adding as much extra cost. World helpdesk SUN Microsystems opened a £36 million, 140,000sq ft extension to its Scottish plant in 2003, which led to the company transferring the manufacture of its Starcat servers from a plant in Oregon to Linlithgow. Most of the workers in the Linlithgow plant are in service-orientated posts. Every Sun network in the world is monitored from the West Lothian town, offering online technical help. 19.10.05

THE government's energy policy is in crisis, with the UK power industry on the cusp of losing control of prices and security of supply. The claim is made by the Institution of Civil Engineers which, in an annual State of the Nation report on the country's physical infrastructure, says no significant progress on producing more electricity has been made since it warned on the situation last year. It believes the price of gas - and therefore electricity - will rise 30% over the next two years and that the amount of electricity generated from wind farms will fall well short of targets at the same time that nuclear power stations are decommissioned. 19.10.05

Britain is threatening to use its presidency of the European Union to force France and Germany to open up their energy markets or face the threat of unlimited fines. "The time for talk and hot air is over," Energy Minister Malcolm Wickes vowed. "The European energy market has got to liberalise." And in an escalation of the energy row between Britain and the Continent, Wickes said that if nothing changed, he would seek action from the European Commission to take France and Germany to court, where they would face massive fines for flouting EU directives. Wickes said the Government is giving the issue top priority when it chairs the Energy Council meeting on December 1. "We have been relaxed about foreign energy companies coming into our country, but we are not going to be relaxed about their refusal to open up their markets," he warned. "EdF, the French energy group, is here, the Germans are here. That's the logic of the market and that's fine. But are there similar opportunities for British companies in Germany and France and elsewhere? The answer is no, and that is not a level playing field. That is not cricket." German group Eon, which owns PowerGen, is planning to increase its presence in the UK market by acquiring Scottish Power. A bid is expected within a month. Wickes was speaking only days before Britain sends a delegation to Brussels to demand that European energy giants open up their markets. The 60-strong delegation, including National Grid, Centrica, the Department of Trade & Industry and energy watchdog Ofgem, is headed by Andrew Bainbridge, director-general of the Energy Users' Council and has Wickes' support. One member, Centrica's finance director, Phil Bentley, said: "It's time for change, for the era of monopoly suppliers to end. We need to see the German and French governments follow the UK and liberalise their markets." It is the first time that such a body has been sent to Europe to plead with European Energy Commissioner Andris Piebalgs and it reflects the growing alarm over soaring wholesale gas prices. Hundreds of thousands of workers in Britain face being laid off this winter because of soaring gas and electricity prices. With Met Office forecasts predicting a colder than average winter, hundreds of small companies will not be able to pay their huge energy bills and will be forced to send their workers home. 19.10.05

British companies were due to lobby the EU today to speed up deregulation of Europe's gas market as energy costs rocket. The industry says the sharp rise in prices is partly due to gas imported from Europe being more expensive because of a lack of competition. Dwindling North Sea gas reserves have left Britain more dependent on imports. Among the companies set to take their case to Europe today were British Gas, Tesco and British Sugar. Energy regulator Ofgem says the lack of competition in Europe is causing gas to become more expensive. Last month, Scottish Gas dealt a blow to thousands of consumers after it unveiled plans to hike domestic energy prices. The firm said the increase in gas and electricity prices of 14.2% came on the back of record highs in the cost of wholesale gas, driven by soaring oil prices and declining North Sea reserves. It followed moves by Powergen and EDF Energy to raise their charges. The industry has partly blamed the sharp rise in household energy bills on the price it now pays to buy gas on the European wholesale market. 19.10.05

Lodestar announced today that EDF Energy has purchased a license for Lodestar's PricingExpert(R) to improve efficiency in their existing business. EDF Energy supplies gas and electricity to around five million customers making it one of the largest energy companies in the United Kingdom. Deregulation over the past fifteen years has made the United Kingdom one of the most competitive markets in Europe. EDF Energy needed to rapidly respond to the resulting competitive pressures with an adaptable solution. The optimal solution needed to be flexible enough to address each individual customer's needs and to adapt to ongoing market changes. At the same time, the solution needed to integrate with the existing Customer Contract Management System to provide a seamless process. EDF Energy found the solution they sought in PricingExpert. "We chose PricingExpert because of its ability to meet all of the functional requirements, its flexibility to adapt to changing market/competitive pressures, and because of Lodestar's demonstrated understanding of the business," says Helen Fairlamb, Pricing Manager Major Business, EDF Energy. PricingExpert's ability to consolidate cost management and pricing into one system will enable EDF Energy to make their processes more efficient and face market challenges head-on. 19.10.05

Don't worry about imports, they are part of the solution Natural gas is by some distance the least fascinating of all energy sources - at least, it is to most British citizens and their media. In the "debate" on energy and carbon policy, which largely amounts to special pleading for government funding or regulatory protection for (in particular) clean coal and nuclear power, there is virtually no interest in gas. The subject surfaces mainly in the context of claims made by supporters of other forms of generating capacity that, in 15 to 25 years from now, the power sector will be overwhelmingly dependent on imported gas from "unstable" countries, and that this will expose the British public to unacceptable security risks. A BBC2 docudrama- set in the future - showed Chechen terrorists blowing up a gas pipeline running from Russia's Baltic coast to Britain, plunging London into darkness an hour later. The debate that followed was largely about the future of nuclear power, rather than the unreality of such a scenario. This lack of public interest in, or information about, gas is slightly strange given that it is the country's most important source of energy, accounting for 41% of primary energy last year (compared -with oil at 34%), and 40% of electricity generation (compared with 33% from coal and 19 per cent from nuclear power). This was never intended to happen. But the post-privatisation "dash for gas" in power generation - partly a dash away from the problems of the coal and nuclear power industries - was followed by a realisation that the switch from coal-fired to gas-fired generation had made a big contribution towards meeting CO2 reduction targets. In 2000, North Sea gas production peaked and began to decline at a faster rate than had been anticipated. Over the past few years, there has been a growing tightness of supply in the winter months, when gas usage peaks. This has been accompanied by much higher levels of prices, with substantial volatility and price spikes. These developments have caused regulatory and parliamentary investigations into the functioning of gas markets and improper corporate behaviour, which have failed to substantiate any allegations of wrong-doing. At the same time, an unprecedented amount of new import infrastructure is under construction, with two new pipelines, the expansion of an existing line, and three new liquefied natural gas (LNG) terminals. This sudden interest in supply, demand and prices is a far cry from the focus of the past two decades, which has been on developing competition in utility markets. Since the mid-1980s, politicians, regulators and consultants have marched around the world lecturing the less fortunate on the wonders of "British experiment". The answer to all problems was to "privatise and leave it to the market", which would produce "the most efficient outcome". This proved to be the case for much of the 1990s and early 2000s, when British businesses and citizens enjoyed substantially cheaper gas prices than their counterparts in Continental Europe, where governments have been reluctant to liberalise their markets. Gas production was allowed to proceed at the fastest possible rate - abandoning the careful "depletion policy" of the nationalised industry era, which was designed to eke out UK resources with the judicious use of imports. Government was also responsible for starting the process that resulted in a pipeline between Britain and Belgium exporting surplus UK gas, with the aim of accelerating European competition. With the peaking of domestic production, that pipeline is increasingly being used to import, and 2004 marked the end of the country's relatively short-lived spell as a net gas exporter, giving rise to dire warnings of impending disaster arising from dependence on foreign supplies. Large-scale imports, when they begin in 2007-08, will initially return the UK to the position 20 years ago, when more than 20 per cent of gas demand was imported from Norway. Subsequently, and assuming higher prices do not stimulate the discovery and production of new gas, import dependence on piped and liquefied gas will increase from a variety of sources: Norway, Netherlands, Russia, Algeria, Egypt, Qatar and others. The diversity of sources and supply routes provides protection against problems with any individual supplier or facility. Gas imports, far from being the main problem, are going to be a large part of the solution to supply problems. "Unreliable and nasty foreigner" theories of security ignore the most important current problem the reliability of ageing North Sea infrastructure and concern about how these may perform in severe weather conditions. The impact of severe weather on offshore and coastal oil and gas infrastructure - as demonstrated by Hurricane Katrina - is a major potential problem. BothTransco and Ofgem have given assurances that, even if it is very cold, there will be sufficient gas and delivery capacity to get through next winter. But experience of the past year suggests that any significant supply problem or severe weather causing increases in demand, even of short duration, will at the very least lead to short-term price spikes. After this winter, imported supplies start to flood in and new gas storage (which was not needed when supply was overwhelmingly from domestic sources) will open up, making the position much more comfortable. In fact, so much new supply will be available that, through the early 2010s, exports may continue for a significant part of the year. The future of UK energy supplies may be renewables, clean coal, some form of nuclear power and, more distantly, hydrogen. For the next 20 years, and probably for a great many more, natural gas will dominate the UK energy balance outside the transport sector. This is a closely guarded secret revealed only in discussions about supply security. But there is no specific reason to think that security of gas supplies will be a major problem - once we get through this winter. 17.10.05

Last Christmas, Ofgem chief executive Alistair Buchanan sat down with his 12-year-old daughter in front of the family computer. The plan was to save money on his gas and electricity bill - something he spends a lot of his working life urging other peopleto do. "I wanted to see just how easy it was," says the energy regulator supremo. "And it was very straightforward. We sat down in front of the internet. She went in, she worked out how to get the best deal, and in about half an hour we were switching supplier." He won't say which firm he chose, of course, but even if he did it would be well out of date. With six suppliers fighting for the same UK customers, new deals can emerge almost day to day. "There is a sophistication coming into the market that is very encouraging," says Buchanan. "There is now an ability to shop. We are now seeing 150,000 to 160,000 customers switching a week." It is likely to get even more competitive - especially in Scotland. New trading arrangements know as BETTA came into force in April, partly intended to loosen the 82% grip Scottish Hydro currently enjoys in the north. "We will know whether it is working some time next year," says Buchanan. "Will we see someone in Perth saying, 'Powergen is going to offer us a £100 better deal, we're off to them'? It will be fascinating to see." Buchanan is passionate about his job. In fact, he is a utilities fanatic - if you can imagine such a thing - having worked in the sector as a City analyst for almost two decades. "Speaking candidly," he admits, "for 20 years I'd bored the pants off my clients, and I'd have bored them even more if I'd carried on. It was time for something new." He joined Ofgem two years ago, and was soon absorbed in what has been arguably his biggest challenge to date - record high gas prices. The suppliers have seen the price of wholesale gas soar, and have been "forced" to hand much of the cost to regular bill-payers. Ofgem cannot order a company to charge more or less - especially with six players in the market - hence the continual obsession with switching. Scottish and British Gas - which has seen market share slump from 65 to 55% during the run of hikes - has now offered to freeze bills until 2010 [as seen on TV]. This is kind of deal Buchanan is urging you to look for. As a City man by background, Buchanan appreciates a major utilities story. The anticipated takeover of ScottishPower by Germany's E.ON, for example. For consumers, it would mean the No.2 player - Powergen - swallowing the fifth-biggest, and many are looking to Ofgem for a judgment. "Its interesting," he says. "I went round the City a couple of weeks ago, and the two stories everyone has decided to believe are that Ofgem would support a move from six suppliers to five, and that we would stop at five." A mistaken belief? "We have not made comment, " he protests. "We are not a competition authority. We will get the opportunity to submit an opinion as a respected party, but we do not want to undermine the appropriate authorities - you'll have to wait and see." He understands that there are reasons why traders and bankers will want to bank on their blessing. "A company may be whispering in the ear of their favourite City person, 'don't worry, our deal will get through, and no one else's will'," he says. ScottishPower and E.ON will need to be addressed, but on a sunny autumn morning there are more pressing matters at hand - namely the regulator's latest winter gas report. This is a sensitive issue, as it tells us how much gas is in the ground around the UK, and if it is enough to get us through the winter. Strangely - considering the apocalyptic consequences of a blanket power cut in sub-zero temperatures - this is another motivation for Buchanan when he took the job: "I could see that some really big questions were going to be asked of the industry. You could see the North Sea was starting to be depleted - I didn't know quite how fast, but we could see issues coming out of that." Issues indeed. The frightening conclusion of the report is that, if the UK suffers a so-called "one in 50" winter, then we will not have enough gas. Full stop. About 10-15% short. To put that into context, the last "one in 50" was in 1962-3. It was so cold the River Thames froze, public transport was shut down, and the cost of fresh food rose by 30%. Now imagine that without power. The problem is that UK supply has reached an in-between stage. Gas levels in the North Sea are low, while £6 billion of new pipelines and connectors from Europe will not come in until 2007. This is where Ofgem has a key role to play - it has to tell us what to do in the event that supplies run out. The word has already got out somehow or other. I tell Buchanan that my grandmother was considering canceling the installation of her new aga, for fear that there would be no gas to power it. An incessant doodler, he jots "grandmother" down before replying. "We are not hiding from the fact that if you have that 'one in 50' winter, its going to be tough - really tough," he says. "But its going to be tougher on industry and commerce than on the consumer." The solution is that large businesses will be forced by the high gas prices to stop production, and sell on the excess power to the domestic suppliers. "As a large business, I will have a choice," explains Buchanan. "Do I smash my aluminium or steel and sell my widgets, or do I sell gas? Many have decided that there is a point at which they would sell their gas back in the market." Ineos Chlor, manufacturer of a wide range of industrial chemicals and one of the top-three industrial users of gas in the UK, has already signalled it is willing to do this - helping to reduce the likelihood of business, and especially consumers, being cut off from essential power. Buchanan adds: "Because of the rapid deterioration in the last three years of North Sea reserves, there is a chance that industry and commerce - if we have a bad winter - will be cut off. At the same time, we want to say to your grandmother, 'you don't need to be anxious about this, you are going to get supplies'." The regulator's educational responsibilities are key to its role. "We are very anxious to get the right story to the consumer. For example, when I first arrived, the story being put out was that the power stations wouldn't be there through the winter. Academics were saying that you would be cooking your turkey by candlelight, or not cooking it at all because you'd have to defrost it. That was quite an erroneous view - because there were a lot of power stations available at that time. "Our full responsibility is to the consumer," he ends with a flourish. "That is the reason Ofgem exists." 17.10.05

Simultaneously, there is a global increase in demand for oil, which has driven its price upwards and has pulled the UK gas price up with it. Closer to home, the nation's love affair with cars, cheap air fares and electronic gadgets is also driving demand for energy. All this makes it even more critical that we focus our minds on reducing the output of greenhouse gases into the atmosphere. Managing these often conflicting issues will not be an easy challenge in the years ahead, and the implications for the energy sector and its customers will be very significant. Governments and electorates are already recognising this, and there is already a much closer convergence between energy and environmental policies -nationally and internationally. We are likely to see wide-scale regional initiatives, such as the European Emissions Trading Scheme (ETS), become increasingly high profile and important. The ETS is primarily driven by environmental demands, but at the same time is central to many issues around energy policy, such as security of supply. In terms of environmental benefits, the scheme works because it does actually constrain in a cost effective way the amount of carbon dioxide that industries across Europe can produce. But the way in which the scheme's second phase is developed from 2008 will be crucial for investment decisions in potential new power generation plant. It is currently far from clear whether new, cleaner power stations will end up having to pay more to emit carbon dioxide than existing plants, and this could hold up construction. So we are looking to the government to give some firm guidance to allow companies to invest in the energy infrastructure we need to deliver security of supply. Developments in renewable generation are already delivering results. The government has established a separate market mechanism that requires all energy suppliers to buy a steadily increasing proportion of their power from green sources, up from 5.5% currently to 15.4% by 2015-16. This framework creates some certainty, meaning that Centrica and others can invest. In our case, we're ploughing 750 million mainly into offshore windfarms. We will, however, need market stability if companies are to invest the very large amounts needed to reach government targets. If we are to hit environmental targets, we as a nation should be focusing just as much on conserving energy as on how we generate it. About a quarter of CO2 emissions come from household energy usage, so energy efficiency has a big role to play. There is progress in some areas, such as more efficient appliances and better insulation. For example, British Gas is installing thousands of high-efficiency boilers and working with customers to save them energy and money. But generally, progress in the UK is nowhere near as rapid as it could be. For most people, the reality is that investing in energy efficiency is some way from the top of their list of priorities. If as a nation we are serious about energy efficiency, we need a programme of incentives to ensure that it happens. Tax breaks on insulation and other energy-efficiency measures need to be far more compelling than the ones that have been put in place so far. Greater innovation is needed. For example, British Gas has a pilot scheme in partnership with four local councils to offer council tax rebates for those households who insulate their homes. We would like to see the scheme extended nationally. It is clear that, in the future, we will see new technologies coming along to deliver greener energy from other sources. Already British Gas is piloting a rooftop wind turbine to generate power for individual homes. We're also working with "green" technology company Ceres Power to develop the world's first household boiler that can be powered by highly efficient fuel cells. This will not only heat water and provide central heating, but also generate electricity. Until these and other technologies are commercially available on a wide scale, however, the UK will become more reliant on overseas gas from the likes of North and West Africa, Norway and the former Soviet Union. Around 25-30% more of our gas will come in via ship in the form of liquefied natural gas. Gas-fired generation is cleaner than coal, and more flexible than nuclear. There is enough gas to last the world far into the future, so it should also be cheaper. But the price we actually end up paying depends on properly functioning markets. In this respect, one of our biggest issues is in Continental Europe. Here, the market is controlled by monopolies with little independent regulation. So it is difficult to get access to gas and transport it to the UK. That is because there is no traded market, and all major gas pipelines and storage facilities are in the hands of big energy suppliers. The European Commission is in the middle of a major competition inquiry into European energy markets. The UK government now needs to use its current presidency of the EU to push energy market competition up the political agenda. It would be quite ironic if UK consumers in a competitive market ended up paying more than necessary for their energy due to a failure to liberalise Continental markets. UK consumers should not have to pay more for their energy because of a failure to open European markets. 17.10.05

UK utility ScottishPower has been busy building its defenses against a mooted £10 billion-plus takeover offer from German energy giant E.ON. Reports in the UK press suggest that E.ON may have to pay up to 700 pence per share to get is hands on the gas and electricity supplier. The Independent newspaper has reported that ScottishPower's board is determined not to allow E.ON to acquire the group for a price that it views as undervaluing the company. This could equate to an asking price of some £12-13 billion - something that is unlikely to please E.ON, as the German firm has already promised shareholders that any future acquisitions will be earnings enhancing within a year. This is likely to deter E.ON from paying a significant premium to get ScottishPower. The Glasgow-based utility insists that, for the time being, it is 'business as usual'. In a trading statement released on October 10th, ScottishPower said its UK business has performed strongly in Q2, and reaffirmed its forecasts for the full year. Its disposal of the PacifiCorp business in the US is ahead of schedule as a result of changes to US law, meaning that it should be completed comfortably within the expected 12-18 month timeframe. 14.10.05

Unmined coal in Wales could be the answer to Britain's energy crisis, an MP told the Commons on Wednesday. Ogmore MP Huw Irranca-Davies also argued that "clean coal" technology could make the fuel eco-friendly. A 1979 survey found 250m tonnes of good quality coal in Wales, but only 20m has been mined because of the pit closure programme during the 1980s. The reserves could provide fuel for power generation for 50 years or more, Mr Irranca-Davies told fellow MPs. 'Zero emissions' He told the BBC Wales's Good Morning Wales programme that he was not backing a "wholesale reopening" of the Welsh pits but said a solution to Britain's energy crisis was urgently needed. By 2020 the 32% of electricity generation in the UK provided by coal will disappear. "Clean coal technology with zero emissions from these new generating plants is one of the ways forward and I'm optimistic the government will look at this quite favourably," the Labour MP said. He added that the technology had been in place for a number of years now - particularly in the United States where emissions are treated to reduce their polluting effect. Pumping deposits The gas can also be extracted from coal to make it cleaner when burning. And he said a process called "carbon sequestration" - pumping deposits into gas and oil reserves under the North Sea - could also be used. "It seems like absolutely amazing science fiction... but it's already being done in Algeria and elsewhere, and highly productively." The MP believes the UK could also export clean coal technology to countries like China, which is opening about one coal plant each week to satisfy energy demands. But a Greenpeace spokesman said using carbon sequestration on a large scale could be 10 to 15 years away. Climate campaigner Mark Strutt said: "There are some pilot projects but a lot of the technologies we need to fit together are still years away. We have to do something about climate change now. "The money that will have to be spent on clean coal technology will be better spent on renewable sources of energy like wind power - which we know works." Only one deep pit remains in south Wales, Tower Colliery near Hirwaun. The mine was bought by managers and workers at the plant in 1994 after British Coal said it was "uneconomic" to run. UK Coal's Stuart Oliver told the BBC News website that re-opening old mines in Wales would be expensive. He said: "In the last 10 years 20 mines have closed - all these mines will be very, very costly to recover. But they technically could be recovered if you had that money to invest in a mining project." Mr Oliver said it would take eight to 10 years to build and commission a new mine. 14.10.05

UK businesses lay most blame for soaring fuel costs on the government but are doing little to cut their energy bills or carbon dioxide emissions, according to an authoritative unpublished study. The survey by Datamonitor, the consulting and market research company, also shows that business does not share the government's enthusiasm for renewable energy sources and remains lukewarm towards nuclear power. The study, the biggest of its kind involving 3,500 businesses, will make uncomfortable reading for Tony Blair, the prime minister, who has promised a review of energy policy next year to achieve the government's goals of cutting greenhouse gas emissions while ensuring secure, affordable energy supplies. The government's strategy is based on improved energy efficiency and the use of renewable energy sources, allied to the expected replacement of Britain's ageing nuclear power stations. Wil