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 explanationgreatly 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
showedin a comparison of nine EU Member Statesthe
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, whilefor
examplein 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 tooE.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, availableas 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 andat 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 happeningfor
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