Select Committee on Trade and Industry Twelfth Report


3  Effects of recent price increases

10. The price of gas delivered to customers is composed of three elements: the wholesale price, the cost of transporting the gas to the end user, and other administrative costs and profit margins. Some of the larger industrial and commercial ('I&C') customers buy their gas direct from the wholesale market, and many others contract to purchase gas further 'upstream' than the domestic consumers and very small business users who obtain their energy from retailers (the supply companies) on the basis of tariffs not contracts. As a result, the wholesale cost of gas forms a much higher proportion of the bills of I&C customers than of domestic consumers: the Chemical Industries Association ('CIA') said that typically the wholesale cost of gas accounted for 60 percent of I&C customers' bills for gas and electricity, and for larger industrial firms buying direct from the wholesale market the proportion would be even larger; while Centrica estimated the proportion as up to 90 percent for the large industrial user, compared with 50 percent for domestic customers.[19] A number of our witnesses also pointed out that competition within the UK in both gas and electricity retail markets had resulted in downward pressure on the other elements of bills (transportation, administrative costs and other margins), which had benefited the domestic and small I&C users much more than larger I&C customers. This, they suggested, was the reason why domestic customers in the UK had experienced much lower prices than their European counterparts over the last few years, whereas the price advantage for larger I&C customers over their Continental competitors had been significantly lower.[20]

Impact on business customers

11. Estimates of the impact of the wholesale gas price rises on business customers varied. The CIA stated that, for its members (all of which are heavy users of gas for fuel, and some of which also use gas as a feedstock in their chemical process[21]), recent renewals of fixed term gas contracts had seen prices 70 percent higher than in the previous year, and for fixed term electricity contracts prices were 60 percent higher. The EIUG estimated that, over the 18 months to November 2004, forward wholesale market prices had risen by about 75 percent for gas and by about 50 percent for baseload electricity.[22] According to the EEF, the price increases had averaged about 30 percent for electricity and a minimum of 30 percent for gas, though some contracts had seen much higher gas price rises depending on the renewal date and the energy intensity of the sector.[23] energywatch's calculations were slightly different: for annual fixed rate electricity contracts renewed in 2004, the rise was 30 percent over the comparable 2003 price; for annual fixed rate gas contracts the rise was 40 percent; and for interruptible gas supply contracts it was 45 percent.[24] The Minister emphasised that the price paid varied significantly from company to company: "The companies [that agreed long-term contracts during the spike] made a commercial judgement at a particular time. Other companies did not make that commercial judgement, they waited, and as a result they purchased gas at a cheaper price only weeks later and they are in a much more competitive position."[25]

12. The proportion of production costs attributable to energy requirements varies significantly from industry to industry. Amongst high users, energy costs form 22 percent of production costs for steel and paper, 40 percent for aluminium smelting and some chemical processes, and up to 70 percent for the production of certain industrial gases. The bulk of these costs (about 75 percent) is attributable to the wholesale price of gas and electricity.[26] In contrast, the EEF acknowledged that energy costs formed a relatively small proportion of overall manufacturing costs; but argued that, even for comparatively low users, energy costs could make the difference between profit and loss, given the continuing squeeze on profitability in the sector. On the basis of trends in gas and electricity prices from 2003-2005, the EEF calculated that the rise in energy prices equalled 2.1 percent of the gross operating surplus of UK manufacturing industry in 2004.[27]

13. We suggested to our witnesses from the manufacturing sector that there were frequent price spikes for other raw materials, with which the sector had to cope; and we asked why energy should be regarded differently. The EEF acknowledged that the price of metals formed a larger proportion of costs than energy for most manufacturers, and that metal prices had recently increased by more than energy costs. The difference, it suggested, was that the rise in metal prices was a worldwide phenomenon, affecting the UK's competitors to the same extent as the UK, whereas UK energy prices were now 20-25 percent higher than those for its European competitors. Moreover, the increase in metals prices had a clear explanation—greatly increased demand from the developing world, and particularly China; while the reasons for the gas price rise were not obvious, so that companies could not adopt sensible market strategies to hedge adequately against future rises.[28]

14. The EEF was not alone in stating that the most damaging aspect of the gas and electricity price rises was not the actual size of the increase but the fact that, because they were limited to the UK, the competitiveness of UK companies was undermined, particularly in comparison with Continental Europe.[29] We therefore tried to discover exactly what the price difference between the UK and comparable Continental countries was. Our witnesses' answers varied widely. The CIA reported that, for forward contracts agreed last autumn, the gas price for UK I&C consumers was 30 percent higher than that obtained by businesses in Germany and Italy.[30] The EEF said that, as of late November 2004, wholesale gas prices were 25 percent lower on the Continent than in the UK; chemical industry companies were then being offered gas contracts starting in January 2005 at prices 40 percent above those obtainable elsewhere in Europe; and construction product companies were reporting prices 40 percent higher than those in Germany or France and 25 percent higher than those in Italy.[31] The EEF explained some of the differences between these estimates as follows. The premium over Continental prices varied according to whether customers purchased direct from the wholesale market (like many large I&C consumers), when the premium was large, or from traders at several removes from the wholesale market (like many smaller I&C customers), when, though the price per therm was higher than that for energy intensive companies, the price differential between them and their Continental competitors was less.[32] According to energywatch, one company had provided data on prices in Italy and Germany showing a downward trend for 2004 and an expectation of lower prices there in 2005 than were obtainable on the UK forward market.[33] Ineos Chlor, which manufactures in Germany and Italy as well as the UK, said that whereas prices in Italy and Germany had risen a little, those in the UK had increased substantially.[34] In contrast, the DTI's Quarterly Energy Prices for December 2004 showed—in a comparison of nine EU Member States—the UK as having as at 1 October 2004 the lowest average industrial electricity prices for medium consumers (when tax was included) and the second lowest (excluding tax); and the fourth lowest average industrial gas prices for medium consumers (including and excluding tax).[35] The UK Offshore Operators Association ('UKOOA') cited evidence that even in October 2004 UK gas prices for small I&C consumers (of up to 1 million cubic metres a year) were equal third lowest among nine EU Member States (and the comparator of one of the cheaper countries, Belgium, was with interruptible contracts); UK gas prices for medium I&C customers (between 1 million and 10 million cubic metres a year) were fourth lowest; and for large consumers (10-50 million cubic metres a year) were third lowest (and again the comparison with a cheaper country, Belgium, was on the basis of interruptible contracts).[36]

15. We do not doubt that both groups have unimpeachable sources for their statistics. It is not clear, however, that they were talking about the same thing. Different witnesses quoted prices without clarifying whether these were spot or future, wholesale prices or the price to the end user. Ofgem pointed out that, while—for example—in Germany wholesale prices were currently lower than in the UK, customers also had to take into account network charges, which were much higher in Germany than in the UK.[37] UKOOA's comparisons of prices within the EU were based on end user prices.[38] A number of UKOOA's figures were based on the statistics compiled by the independent analyst, Heren, which receives reports of forward month transactions, checks their reliability, and then produces an index calculated from the volume-weighted average of these transactions.[39] As Centrica noted, anyone agreeing a long-term contract based on forward prices in September or October of last year would be likely to pay higher prices than the average for all similarly-sized industrial consumers.[40] Moreover, the UK and Continental markets are so different in their structure, the type of contracts available, and the degree of liberalisation, that making accurate comparisons is difficult. We accept that the overall statistics mask significant price imbalances between individual UK companies and sectors and their competitors in Continental Europe. However, we note that Continental supply contracts also usually contain provisions for a time lag of between three and nine months before customers are affected by any price increases in the commodities to which the contract is indexed. We suspect that I&C customers on the Continent will soon experience higher prices for gas too—E.ON confirmed that this was already beginning to happen in Germany.[41] This would reduce the competitive disadvantage experienced by a number of UK companies.

16. As a result of vigorous competition and their existing contracts with their customers, in many industrial sectors companies in the UK are unable to pass on their higher energy costs. The CIA explained that their members supplied goods on the basis of fixed prices for between one month and one year, so it was impossible to raise prices to customers to recoup higher input costs.[42] This was particularly the case for smaller I&C customers: many of the larger manufacturers were producing goods such as steel and building products, and were responding to high energy costs by raising the price of their goods, so smaller manufacturers making use of these products were affected not only by higher energy bills but also by the increased cost of some of the basic materials they used.[43]

17. Moreover, I&C customers argued that they had little chance of reducing demand further, because they had already made considerable cuts in their energy use by means of energy efficiency measures. The CIA said that the chemical industry had improved its energy efficiency by 30 percent since 1990, and others commented on the effect of the Climate Change Levy and Climate Change Agreements in encouraging demand reduction.[44]

18. We asked whether I&C customers were changing their buying practices to try to avoid or mitigate some of the problems caused by high gas wholesale prices. In particular, we wondered whether they were considering moving from the standard annual to shorter-term contracts, especially in view of the fact that, although spot prices have also been volatile, in December 2004 and January 2005 they were significantly lower than the prices being paid by customers who had agreed longer-term contracts the previous autumn. A variety of shorter-term contracts were, we were told, available—as well as the spot market, there were monthly rolling contracts, day ahead floating price contracts, monthly floating contracts in which the customer could choose to lock into a price for three, six or twelve months.[45] Our witnesses explained the benefits of annual contracts for planning: I&C customers often placed a high premium on achieving certainty in some basic input costs like energy. Opting for shorter-term contracts greatly increased uncertainty and was seen as inherently more risky.[46] Moreover, although larger manufacturers had the experience, confidence and resources to take the risk of buying an essential commodity on the spot market, smaller companies rarely had the know-how or the resources to monitor the shorter term markets and engage in an almost continuous process of purchasing their gas.[47] There was risk also in opting temporarily for buying on the spot market in the hope of obtaining a longer-term contract when forward prices had returned to a more rational level: one chemical industry company had substituted trading on the electricity spot market for renewing its annual contract but when, in January 2005, it was looking for a longer-term electricity contract, the prices it was being offered were double what it had paid at the same time in 2004.[48]

19. Moreover, while foreign owners of UK manufacturing companies disliked the high energy costs recently associated with annual contracts, they also disliked the degree of uncertainty resulting from shorter-term contracts.[49] We were told that, as a result, they were increasingly likely to favour investment in more predictable and—at least at present —lower cost European countries at the expense of their UK plants.[50] This would not necessarily lead to sudden plant closures, but just to a drift away of investment in new product lines or replacement of old equipment which would ultimately undermine the ability of the UK plants to survive.[51] The Minister for Energy and e-commerce expressed scepticism that this would happen, arguing: "It would be a pretty poor company which decided to shift its subsidiary from one country to another because gas prices had risen to about the same level as they were in Europe, maybe a little bit above, for a short period, and then they would come back down."[52]

20. We asked whether UK businesses would prefer the predictability of the Continental model, which is based on mainly long-term contracts (some of five, ten or fifteen years' duration) indexed to the price of substitute fuels, such as heavy fuel oil and gas oil. All the trade bodies representing manufacturers stated that they would prefer to see the UK model working properly, with a competitive futures market. BP said there was no evidence of UK customers seeking contracts of longer than two years; instead, they were trying to limit risk by negotiating fixed prices or price caps for shorter periods.[53] Mr Paul Golby of E.ON UK stated his view that neither UK customers nor German ones were likely to change their preferred style of contract.[54]

21. We also noted an oddity of the arrangements for contractual renewal in the UK: the fact that many annual contracts fall to be renewed in either April or, especially, in October. The annual contracts of a very large number of I&C customers therefore expired at the time of the maximum peak in prices last autumn. We wondered whether there was a causal link between the two, and why so many contracts were tied to an October to October cycle. The second question was more easily answered than the first. The bunching of renewals twice a year dates back to the days when British Gas was still a nationalised industry and considered it more convenient administratively to deal with renewals in this way. Given the tendency of customers to opt for one year contracts, the bunching has continued.[55] Furthermore, we were told that October is the peak month for renewal of electricity contracts by I&C customers, so electricity generators also contribute to the bunching in the gas market as they tend to contract for the gas to run their plants at about the same time as they sign the supply contracts.[56]

22. As for the question whether the bunching of demand has an effect on prices each autumn, opinion was divided. Centrica and Ofgem thought it had an effect; the DTI was certain it did; the EIUG denied it did; others felt it was difficult to disentangle any effect from the annual price rises as winter approaches.[57] The CIA noted that the bunching of renewals had been a long-term feature of the market, but it was only in the past two years that price spikes for winter forward prices had been so high.[58] Some customers, however, have broken with the 'October gas year' or are considering doing so. The ceramics industry decided six years or so ago to renew their contracts in the May to August period in order to avoid the rise in prices that occurs in anticipation of greater winter demand; and, although this had been of some benefit, it had not made a huge difference to the overall fluctuation in prices experienced by that industry in comparison with others.[59] E.ON UK reported that "increasingly both we and our customers are looking at longer term deals and looking at flexing from those [autumn] dates."[60] All the manufacturing trade bodies said that some of their members had moved or were considering moving from the October gas year; but, the associations felt, if this just resulted in bunching at another time of year, the problem would not have been solved.[61] The EIUG argued that there was no real shortage of supply last autumn, only fear of one, and if there had been enough shippers willing to sell into the forward market in September 2004, there would have been no extreme price spike anyway.[62]

23. We asked whether any advice was available, especially to SMEs which had previously been able to renew their modestly priced annual energy supply contracts without too much effort. The CIA admitted that there was scope for trade organisations to raise their members' awareness of the trading options, and said that it had discussed with the DTI how they could work together to provide more information to smaller businesses.[63] We canvassed the idea of purchasing co-operatives, reasoning that smaller companies might be enabled to cope with the spot market if they shared expertise and gained greater market power by banding together. The CIA conceded that the industry had done something similar in respect of the employers liability insurance when the costs of that rose rapidly; and it said it would be willing to help again in relation to the spot market. However, in its view what smaller companies really needed was the certainty of longer term contracts, not help with short-term trading.[64] The EEF thought that a more effective way of helping manufacturing industry would be for the Government to freeze the rate of the Climate Change Levy for 2005 and urgently review its role thereafter.[65]

24. The recent gas and electricity price rises have created major problems for the competitiveness of UK manufacturing industry. As the EIUG suggested, industry would be able to live with these problems if it felt that the competitive disadvantage would shortly disappear[66]—after all, UK industrial consumers have experienced a relatively long period of below average fuel prices to offset the recent peak, and such fluctuations are an integral part of a liberalised market.[67] However, industry fears that the autumn 2004 price spike will not prove to be an isolated incident, partly because one cause of it was the lack of liberalisation in European Markets which will not be rectified quickly,[68] and partly because it feels the spike has not been fully explained by market fundamentals and is probably a symptom of serious market failure. We believe such a failure could be attributed to supply side rigidities. We return to this issue later.

25. If we are correct, then industrial customers continue to run the serious risk of paying much higher prices for their energy if they opt for the stability of annual contracts over the risk associated with shorter-term contracts. They must make this decision for themselves. However, we urge trade associations and the DTI to work quickly to provide (especially smaller) business customers with the information they need about options. We also think that companies should seriously consider disconnecting their energy contracts from the October renewal date: although annual contracts should smooth out the seasonal price peaks and troughs whatever the starting date, the effect of so many contracts being renewed at the same time would tend to make it a sellers' market.

26. In this context, we were pleased to hear from the Minister that the DTI intended to hold a seminar early in spring to enable I&C customers to discuss different purchasing strategies and to share ideas on how they might reduce the problem of the autumn price spike by smoothing out the bunching of contract renewals.[69]

27. We received evidence that certain non-industrial users had faced particular problems in trying to mitigate the effects of the price rises: these were universities and public sector bodies, such as local authorities, which are constrained under public procurement rules.[70] Several reported gas price increases of over 80 percent for contracts renewed in the autumn of 2004 compared with two years ago. These bodies must not be forgotten. We expect the DTI to include them in discussions on how to cope with the price rise.

Effects on domestic customers

28. Because of the lower proportion of their fuel bills represented by wholesale gas costs, the effects of the rise in the price of wholesale gas in 2004 were not as immediate and dramatic for domestic consumers as for industrial and commercial ones. However, all six major suppliers of gas and electricity to domestic customers have announced price rises for both gas and electricity. energywatch analysed price data for suppliers to domestic customers over an 18 month period between April 2003 and October 2004. It weighted the data to reflect the market share of each supplier. Its conclusion was that there had been a cumulative price increase of 21 percent in gas and 15 percent in electricity, most of which had occurred during 2004.[71] Price rises varied according to the payment method of the customer: the annual gas bill of a customer paying by Direct Debit would have increased on average by £31, while for a customer using a Pre-Payment Meter ('PPM'), it would have increased by £26. The comparable figures for annual electricity bills were £16 for a Direct Debit customer and £2 for a PPM user.[72] However, the picture varied markedly from company to company: between October 2003 and October 2004 British Gas raised its tariffs to PPM customers by 22 percent, while others made more effort to mitigate the effect of the wholesale gas price increases for gas PPM customers.[73]

29. While these price increases are uncomfortable for all customers, their effect on those with lower incomes is potentially very grave. In the last few years, there has been considerable progress in reducing the incidence of fuel poverty[74] in the UK: the Government estimates the number of households in fuel poverty to have fallen from 5.25 million in 1997 to 2.25 million in 2004.[75] However, there is a general consensus that the most of this decrease is attributable to a single cause: the fall in energy prices during this period.[76] energywatch suggested to us that for every 10 percent by which energy bills increased, an extra 500,000 households in England and 60,000 in Scotland[77] fell into fuel poverty. The Fuel Poverty Advisory Group's figure was slightly lower: 400,000 households in England for every 10 percent increase.[78] The DTI, on the other hand, estimates that an additional 200,000 households will experience fuel poverty during 2004 and 2005 as a result of the price increases to date.[79] As households fall into fuel poverty, they tend to use less fuel than they should to keep themselves warm, or they incur debt to their fuel supplier, or both.

30. Both energywatch and the FPAG made a number of suggestions as to how the Government and the industry could reduce the hardship arising from the increases in energy prices. energywatch suggested that the first action needed was for the Government to recognise that its fuel poverty strategy would have to be adapted to take into account the expected continuing increase in fuel prices into 2005 and 2006. In this context, energywatch believed that the Government should also take into account the imminent price rises for other essentials like water, transport and Council Tax. It argued that the Winter Fuel payment for the elderly and certain categories of disabled people should be extended not only in terms of an increase to cover recent price rises but also that its scope should be widened to other vulnerable consumers. energywatch again called for better use of the Fuel Direct scheme, under which modest deductions to repay fuel debt are made directly from certain state benefits.[80] It also suggested that the Government, in co-operation with energy suppliers, should conduct a more concerted campaign to increase the claiming of benefits by those eligible; and, to this end, that the Energy Efficiency Commitments required of supply companies should be amended to require them to undertake 'benefits health checks' with customers potentially eligible for subsidised energy efficiency measures.[81] The FPAG identified further gaps in the Government's programmes for tackling fuel poverty. It called for a greater focus on houses not connected to the gas network, and therefore unable to install gas-fired central heating; and for an extension of the energy efficiency programme 'Warm Front'.[82] Centrica emphasised the need to make better use of the funds already committed for tackling fuel poverty (from government and industry sources together, about £1.6 billion over the next three years). In particular, Centrica called for even more emphasis on identifying households in fuel poverty. It suggested that pooling information held by government departments and the supply companies was important,[83] and that there needed to be greater pressure on local councils and health authorities to ensure that they took this problem seriously and actively promoted the schemes put in place by the energy companies to help those in fuel poverty.[84] The Minister for Energy and e-commerce described action already being taken: working parties had recently been established to consider how to collate and use information on the identity of the fuel poor from various sources. These, he hoped, would report preliminary conclusions by the end of March 2005. At the same time, a fellow DTI Minister was trying to promote co-operation between the key government departments.[85]

31. As far as supply companies were concerned, energywatch suggested that they should make more effort to introduce innovative tariffs for priority groups of customers; they should follow the industry's own guidelines on minimising disconnection for debt; they should observe the protocol on not blocking the transfer to other suppliers of customers who owed less than £100; and they should mitigate price rises to users of PPMs.[86] The FPAG called for an expansion in the Trust Funds set up by some supply companies to provide advice and support to those in debt to their energy suppliers.[87]

32. We endorse all these suggestions, which repeat our recommendations over a number of years in our Reports on various aspects of fuel poverty. It is clear that the long term solution to the problem of fuel poverty must not rely on low energy prices. We note Ofgem's assurances that some of the necessary responses are already happening—for example, the development by companies of innovative tariffs, and continued pressure by the regulator for companies to follow best practice guidelines on dealing with customers in debt.[88] However, more efforts are required. We particularly emphasise the need for greater co-ordination within Government to deploy key providers of public services (especially in the fields of health, social services and social security) in the task of identifying those in fuel poverty and informing them where they can obtain advice and help.

33. energywatch and the FPAG suggested that the cost of such measures could be borne in part by the taxpayer, as the increase in North Sea oil and gas revenues had brought a substantial gain, of about £2 million, to the Exchequer, and partly by the gas and oil producers (given that the energy supply companies were already making a significant financial contribution).[89] The FPAG said that it would prefer the gas producers to contribute voluntarily to fuel poverty programmes; but, if they refused to do so, it considered a windfall tax would be justified.[90] We asked the production companies whether they would provide money for fuel poverty programmes on a voluntary basis.[91] They replied that they already committed considerable sums of money to various programmes to support good works, and they were reluctant to pledge themselves to anything else.[92]

34. We therefore raised the subject of a windfall tax. As was to be expected, the gas production companies strenuously opposed this, arguing principally that it would damage investor confidence in the offshore industry at a time when it was just recovering from a previous tax rise (in the rate of Corporation Tax applied) in 2002, and when the UKCS was becoming significantly less attractive than other oil provinces which had been opened up to foreign investment and exploitation more recently, and where the fields were larger and presented far fewer technical problems. They emphasised the volatility of oil prices, and the long-term nature of investment in the infrastructure needed to extract oil and gas. They argued there was a real danger that oil companies would abandon future investment in the UKCS and a significant proportion of the UK's oil and gas reserves would then be left in the ground.[93]

35. The representatives of I&C customers were also opposed to the idea of a windfall tax. They were concerned about its effect on investment in the UKCS, and felt that it was irrelevant as it would do nothing to address the problems they had identified with the wholesale gas markets.[94]

36. Since we started this inquiry, a number of oil companies operating in the UKCS have announced record profits. These are multinational companies producing both oil and gas, and it would be wrong simply to assume that much of this profit is attributable directly to the dramatic increase in UKCS gas prices. We also acknowledge that the production industry is subject to a higher rate of Corporation Tax than other sectors. Some of our witnesses advanced arguments for a windfall profits tax, but we have received too little specific evidence on its potential impact on future investment in the UKCS to report on this issue. However, if the current very high levels of world oil and gas prices continue and if a specific proportion of the profit can be identified as coming from the UKCS, then we believe that the Chancellor of the Exchequer should carefully consider the options. We would prefer those companies that have benefited from the price rises voluntarily to contribute to the alleviation of fuel poverty as part of their Corporate Social Responsibility programmes: it would enhance their reputation and would provide help more swiftly to those who, though unable to afford it, are contributing to their unearned profits.[95] We do not expect the production companies to set up fuel poverty programmes themselvesas they pointed out, government agencies and the energy supply companies are much better placed to identify those in need of help and deliver that help. But we do not believe it would be difficult to devise a mechanism through which they could donate money to such schemes.


19   Qq 43 (EIUG) and 375-376 (Centrica), App 5 (CIA), para 9 Back

20   Qq 43 (EIUG) and 375-376 (Centrica) Back

21   The chemical industry is the largest consumer of energy in the manufacturing sector: 22 percent of all energy used by manufacturers in the UK: App 5 (CIA), para 4  Back

22   App 11 (EIUG), para 5 Back

23   Q 209 (CIA), App 5 (CIA), paras 10 and 11 and App 13 (EEF), para 24. Back

24   Appendix 12, section 2 Interruptible contracts allow customers to contract for gas or electricity supplies at a lower price than normal, on condition that, if the supplier has difficulty in balancing supply and demand for its customers in general, then the supply can be temporarily cut off. Gas and electricity suppliers offer interruptible contracts to some large users, both industrial and in the public sector, such as hospitals.  Back

25   Q 536 Back

26   App 11 (EIUG), para 2 Back

27   Q 280 (EEF); App 13 (EEF), paras 4-19 and tables 1 and 2 EIUG calculated the increase in wholesale gas prices over the 18 months to November 2004 to have added about £0.5 billion to the annual cost to industry of gas supplies and about £1.0 billion to the annual cost to industry of electricity: App 11 (EIUG), para 3 Back

28   Q 280 (EEF) Back

29   For example, Qq 50-52 (EIUG) and 181 (CIA) , App 11 (EIUG), para 4 and App 5 (CIA), para 8 Back

30   Q 181 (CIA) Back

31   App 13 (EEF), para 24 Back

32   Q 287 Back

33   App 12, section 2 Back

34   Q 181 The CIA concurred. It reported that between October 2003 and October 2004, future wholesale gas prices had increased by 63 percent in the UK and by only 20 percent on the Continent: App 5, para 9. Back

35   Table 5.4.1 (electricity) and table 5.8.1 (gas) The electricity comparison excludes Denmark, Greece, Ireland, Luxembourg, the Netherlands and Portugal, and the gas comparison excludes Greece, Ireland, Italy, Luxembourg, the Netherlands and Portugal, as relevant data for 1 October was not available. 'Medium consumers' of electricity were defined as having an annual consumption of 24GWh pa with a maximum demand of 4 MW, and medium gas consumers as having an annual consumption of 11.63 GWh. Back

36   App 29 (UKOOA), Annex Back

37   Q 497 Back

38   App 30, Annex Back

39   Information supplied to the Committee by Heren Back

40   Qq 375-376 Back

41   Qq 334 and 344-345 Back

42   Qq 185 (CIA) and 288 (EEF); see also App 13 (EEF), para 24 Back

43   Q 288 (EEF) and App 13 (EEF), para 24 Back

44   App 5 (CIA), paras 5, 16 and 17, App 14 (E.ON), para 9, and App 13 (EEF), para 25  Back

45   App 13 (EEF), para 25 and App 11 (EIUG), para 6; Q 376 and 395 (Centrica) and 502 (Ofgem),  Back

46   App 5 (CIA) para 16, App 13 (EEF) para 25 In effect, risk is transferred from the supplier to the customer: Q 45 (EIUG) Back

47   App 13 (EEF), para 25, App 5 (CIA) para 16, Qq 45 (EIUG), 179, 181 and 202-208 (CIA) and 290-294 (EEF) See also App 32 Back

48   Qq 179 and 208 (CIA) Back

49   Qq 45 (EIUG) , 208 (CIA) and 290 (EEF) Back

50   Qq 45 (EIUG) and 288 (EEF) and App 13 (EEF), para 25 Back

51   Q 288 (EEF) and App 13 (EEF), para 25 Back

52   Q 526 See also Q 537 Back

53   Qq 123-124 Back

54   Qq 336-339 This view of the likelihood of Continental contracts remaining unchanged was not shared by the majority of our witnesses: (see also paragraphs 77-78 below). Back

55   Qq 44 (EIUG) and 338-339 (E.ON) Back

56   Q 446 (SSE) Back

57   Qq 376 (Centrica), 502 (Ofgem), 510 and 536 (DTI), 48 (EIUG) Back

58   Q 207 The DTI noted that in January 2005 the forward market was already anticipating a price spike in October 2005: Q 510. Back

59   Q 44 (EIUG) Back

60   Q 339 Back

61   Qq 44 (EIUG), 201 (CIA) and 297-300 (EEF) Back

62   Qq 44 and 48 Back

63   Qq 205 and 212-214 Back

64   Q 215; see also Q 289 (EEF) Back

65   App 13 (EEF), para 29 Back

66   Qq 59-60 Back

67   App 7 (DTI), para 6 and Charts 3 and 4 Back

68   See paragraphs 81-91 below Back

69   Qq 510 and 538 Back

70   App 9, App 18, App 22 and App 31 Back

71   App 12 section 2 and figures 1.21 and 1.23 Back

72   Ibid. Back

73   Ibid. figures 1.22 and 1.24 Back

74   'Fuel poverty' is defined broadly as a situation where a household has to spend 10 percent or more of its income to ensure that it has adequate warmth and to meet other basic energy needs. Back

75   Q 539 (DTI) Back

76   See our earlier Report on Fuel Poverty, Sixth Report of Session 2001-02, HC 814, paragraph 10 Back

77   There is no equivalent estimate for Wales or Northern Ireland Back

78   App 12 (energywatch), section 2; App 17 (FPAG) Back

79   App 8 Back

80   See also App 2 (Centrica), para 5.8.2 For more information, see Trade and Industry Committee, Debt and disconnection: Gas and Electricity Supply Companies, Fifth Report of Session 2004-05, HC 297-I, paragraphs 40-44 Back

81   This call was echoed by Centrica: Q 396 and their domestic customers and Memo, para 5.8.1 energywatch suggested that every customer in debt to their energy supplier for more than three months should be offered a benefits health check, and no customer should be disconnected without such a check: Memo. See our earlier Reports on Fuel Poverty and Debt and Disconnection for further information about the use of energy efficiency schemes to increase take-up of benefit.  Back

82   App 17 For a description of energy efficiency programmes, see our Report on Fuel Poverty, paragraphs 26-32 Back

83   Centrica recognised that there were problems with Data Protection in this context, but it did not consider these insuperable. Back

84   Qq 386-398 and App 2, paras 5.8.3-5.8.4 Ofgem also emphasised the need for greater activity by local councils and health authorities: Q 504 Back

85   Qq 539-541 Back

86   App 12 Back

87   App 17 Back

88   Qq 475, 479-481 and 503-504 Back

89   Q 27 (FPAG) and App 17 (FPAG) and App 12 (energywatch), section 1 Back

90   Qq 30-31 Back

91   We understand that Neighbourhood Energy Action has been trying to persuade the companies to do this: Q 30 (FPAG). Back

92   Qq 152 (UKOOA), 165-166 (BP) and 259-262 (Shell) Back

93   Qq 152-154,162-164 and 169-170, 172-173 (UKOOA and BP), 223, 258 and 264-265 (Shell) and 404 (Centrica); App 29 (UKOOA), paras 39-40 Back

94   Qq 70 (EIUG), 91 (AEP) and 218-21 (CIA), and App 11 (EIUG), para 13 See also the views of E.ON: Qq 346-349 Back

95   We note that this was also the view of the Minister for Energy and e-commerce: Q 542 Back


 
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