Letter from Scottish and Southern Energy
WHOLESALE GAS
Thank you for your letter of 19 September. I
am pleased that the Trade and Industry Committee is maintaining
its interest in the issues surrounding wholesale gas prices.
SSE's concerns about the operation of European
energy markets are well-documented and the European Commission's
preliminary inquiry into the operation of these markets also identified
a number of issues in respect of competition. Fundamentally, the
market has been beset by a lack of transparency and a lack of
liquidity. We have made it clear in our response to the European
Commission Green Paper on energy that top priority needs to be
given to ensuring there is a comprehensive and substantive outcome
to the Commission's full competition inquiry into the functioning
of the European energy markets.
The Committee's concerns are also well-documented.
As you know, in March 2005 it concluded that without further real
liberalisation of the European gas market, there would be a tendency
for prices to diverge significantly, and concerns about the illiquid
and illiberal nature of the wholesale gas market were expressed
in its report in December 2005.
You are naturally interested in the inter-action
between wholesale energy prices and the prices charged to customers.
This is a subject which is not well-understood. For example, a
recent press report began with the erroneous proposition that
"Britain's largest domestic gas suppliers are resisting calls
to cut bills for thousands of households across the country despite
the recent drop in wholesale gas prices".
From SSE's perspective, the actual position
is very straightforward. First, over the past three years of rising
wholesale prices, we have repeatedly delayed imposing price increases
for domestic customers. Second, those price increases which have
been passed on to customers have been much less than the full
extent of the increases in wholesale prices. Third, as a responsible
supplier wishing to be able to guarantee customers' supplies,
we procure gas up to 18 months ahead of the time it is delivered
to customers.
All of this means that domestic customers are
still having to live with the consequences of three years of wholesale
energy price rises (but not the full consequences, because these
have not been passed on to them) and will, unfortunately, have
to live with them for some time. Moreover, forward gas prices
for the forthcoming winter still remain above those of last winter.
Taking all of this into account, the immediate outlook for domestic
customers is not positive. Nevertheless, if, as is to be hoped,
there are in due course sustained falls in wholesale energy prices,
then SSE will move as quickly as possible to reverse the price
rises of recent years.
I hope this is helpful. I would, of course,
be very pleased to meet you and other members of the Committee
to discuss these issues if that would be helpful.
21 September 2006
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