Supplementary evidence from Centrica
1. UK/EU PRICE
COMPARISONS
In our original written submission to the Select
Committee, we referred to BERR's Quarterly Energy Statistics published
in March 2008. Quarterly Energy Statistics covers estimated gas
and electricity prices to UK and EU domestic and industrial consumers.
BERR have recently updated this document to include estimates
of prices between January and June 2008. This can be summarised
as follows:
— For gas, BERR Quarterly Energy Prices
(published 26 June 2008) show that estimated average domestic
gas prices, including taxes, in the UK for medium consumers from
January to June 2008 were the lowest in the EU 15 and were 45.1%
lower than the median.
— For electricity, BERR Quarterly Energy
Prices (published 26 June 2008) show the estimated average domestic
electricity price including taxes in the UK for medium consumers
for January to June 2008 was the 5th lowest in the EU 15 and was
12.5% below the median price.
2. ACTION TO
ADDRESS PREPAYMENT
METER DIFFERENTIALS
— British Gas is the only supplier
to have created a standalone business to focus on prepayment customers
and we fully intend to pass improvements in our operating costs
through to our customers to allow us to close the differential
between cash/cheque and prepayment.
— British Gas currently has 2.3 million
prepayment meter customers. Our priority is to offer these customers
improved service in a number of different and unique ways. For
example, British Gas operates its own 24 hour contact centre service
for customer emergencies with dedicated, trained customer service
advisors to ensure continuity of our prepayment customers' supply.
No other energy supplier currently offers this service.
— We have up to 35% more pay outlets
than our competitors—for many customers convenience/access
to outlets is important.
— We are innovating and we have launched
the first online prepayment tariff which will see prepayment dual
fuel prices fall by 6% compared to off line prepayment prices.
For customers moving to this online tariff will see an average
dual fuel bill fall from £1,143 to £1,073, a saving
of £70.
— Our Essentials tariff is the largest
social tariff in the UK and allows eligible customers to equalise
their prepayment prices with our lowest standard tariff—Monthly
Direct Debit. This equates to an average saving of around £161.
— Centrica also believes that prepayment
meter customers will benefit from the introduction of smart meters
and that the improved functionality of smart meters will remove
prepayment differentials.
— We expect that smart metering and
the introduction of new e-payment and website technology should
sweep away high cost to serve practices such as cash collection
costs, payments to retail outlets within today's high prepayment
meter model.
— British Gas is uniquely trialling
115 electricity prepayment meters in Manchester using e-payment
technology. Results from this trial show consumers prefer e-payment
facility and a reduction in cost to serve.
— We want to use our experience from
this trial for our general smart meter programme.
— However, we believe more work needs
to be done to perfect and improve on the technology and systems
and we see the roll out to prepayment meter customers as an integrated
part of a wider universal roll out.
— Ultimately we want our meters to
be switchable between prepayment and credit which we believe will
grow the prepayment meter market with customers choosing to take
a range of value added offerings.
3. EU EMISSIONS
TRADING SCHEME
AND WINDFALL
PROFITS
— The table below shows the total allocation
of free allowances that each of the six energy suppliers are scheduled
to receive over Phase II of the EU ETS which runs from Jan 2008
to December 2012. It clearly shows that Centrica benefits least
from the allocation of free allowances. It is also important to
note a couple of key points:
— "Profit" is only made for
Phase II as we are expecting full auctioning from phase III for
generation sector—Centrica has been calling for full auctioning
for a number of years. We were also calling for the auctioning
of the maximum 10% of allowances allowed under Phase II of the
scheme. The Government has stated only 7% will be auctioned.
— Centrica would support the revenues
from the 7% auctioning of allowances under Phase II and from the
100% from Phase III being recycled to support low carbon and fuel
poverty objectives. The CBI estimate the sale of the 7% auctioned
EU ETS allowances would raise £1.6 billion.
FREE ALLOWANCES UNDER EU ETS
| Value of Free Allowances (£m)
|
| Ph II allocation (kt/yr)
| Annual average phII | Total phase II
|
| Centrica | 4,765 | 98
| 492 |
| E.on | 13,434 | 277
| 1,386 |
| EdF | 10,956 | 226
| 1,130 |
| RWE | 12,321 | 254
| 1,271 |
| Scottish Power | 10,029 |
207 | 1,035 |
| SSE | 13,795 | 285
| 1,423 |
| Total for big 6 | 65,300 |
1,347 | 6,737 |
| Total in Power sector | 104,000
| 2,146 | 10,730 |
Note: calculations are based on current carbon price of
€25/t and an exchange rate of 1.25.
— Centrica receives comparatively low allowances
as a result of its ownership of clean sources of power generation.
These are supported by its gas-production assets. Centrica experiences
a high incidence of additional "windfall" taxes on the
value of gas produced by its principal fields which are subject
to a higher tax rate of 75%. Its clean power generation therefore
comes at an additional tax price not shared by the rest of the
industry.
"WINDFALL" TAXES SUFFERED (£'M) 2008-12
| | PRT | SCT
| Total | % |
| Centrica | 1,271 | 501
| 1,772 | 89 |
| E.on | 8 | 111
| 119 | 6 |
| EdF | 0 | 0
| 0 | 0 |
| RWE | 13 | 76
| 89 | 5 |
| Scottish Power | 0 | 0
| 0 | 0 |
| SSE | 0 | 0
| 0 | 0 |
| Total for big6 | 1,292 |
688 | 1,980 | 100
|
| Total in Power sector | |
| | |
Note: Figures for windfall taxes (ie those in excess of
the UK statutory corporation tax rates for large companies) have
been obtained form published Wood Mackenzie data and estimates.
— We believe that it is important that talk about
windfall taxes on profits is seen in the context outlined above.
Centrica will be investing £1 billion per annum in new gas
and power assets in the next three years and it is vital that
this investment is not undermined especially at a time when the
UK is facing a generation gap as a result of the closure of coal
and nuclear fleets.
7 July 2008
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