APPENDIX 35
Supplementary Memorandum by the European
Commission Competition DG
ENERGY PRICES
PAID BY
INDUSTRIAL CONSUMERS[50]
When I gave evidence to the Trade and Industry
Select Committee on 22 February, I promised to write with more
detailed information about prices paid by industrial consumers,
in the UK and in other European countries.
The Commission collects data on the prices charged
to customers by suppliers. However, prices paid by industrial
consumers do not necessarily directly reflect the prices on wholesale
markets. Although some of the witnesses you heard were from companies
that buy straight from wholesale markets in the UK, you should
bear in mind that in most other Member States an organised wholesale
market either does not exist, or trades only relatively small
volumes. Even in the UK, many industrial users will be supplied
by a traditional arrangement with a gas supply company rather
than having a contract linked to the wholesale market price.
Where there is an intermediary of this type,
it cannot be assumed that prices will have a direct relationship
with wholesale markets and other factors such as the contract
structure and differences in the size of the supply margin will
affect comparisons. Therefore, while we can make a comparison
between countries of end-user prices charged by suppliers to industrial
consumers, it is not possible to make a direct comparison of the
costs of going direct to forward markets, since this is only common
practice within the UK.
Our data on end-user prices charged by suppliers
are collected by national statistical offices from energy suppliers
and then collated by Eurostat, and as a result of this process
become available with a time-lag. The most recent data currently
available from Eurostat relate to July 2004, and as I told you
in the hearing, at that time UK prices were among the lowest in
Europe. I have annexed a graph showing gas prices paid by both
large and small users, which shows the UK out-performing all others
except the new member states. For comparison, US average prices
in the same month were also somewhat higher than UK levels, at
around 17/MWh for industrial users and 36/MWh for households.
This information is based on an average of the
reported prices paid by customers with an annual consumption of
10 million cubic metres per year, and those consuming one million
cubic metres per year. It should be noted that prices for the
very largest users such as those giving evidence to the Committee,
which are usually those most exposed to movements in wholesale
prices, may not be captured in these figures.
As regards forward prices, these certainly rose
sharply in the UK during 2004, and overshot the prices that prevailed
at Zeebrugge in Belgium and Emden in Germany. Prices for delivery
in Q1 2005 were around 15/MWh in late 2003, but by the end of
2004 had risen to 25-30/MWh. Liquidity on the UK market has also
declined over recent years, which might reduce the opportunity
for industrial buyers to off-set price risk. It is probable that
these wholesale price movements will be reflected, to an extent,
in the data to be submitted for January 2005 which will arrive
at the Commission in the coming months.
Philip Lowe
Annex
End-User Gas Prices Comparison: July 2004[51]
Source: Eurostat
50 Received after the Committee agreed the Report. Back
51
"Large": average Eurostat price for I4 and I3 standard
consumers. "Small": average Eurostat price for I1, D3
and D2 standard consumers. Prices are reported net of all taxes. Back
| 
