Memorandum submitted by John Huggins
UK NATURAL GAS COMPETITION
1. EXECUTIVE
SUMMARY
1.1 There is strong evidence to suggest
that competition is working for large industrial gas consumers
but is no longer working for small consumers.
1.2 this evidence is based on BERR's own
figues and shows that the price differential between the largest
and the smallest consumers has more than doubled since the third
quarter of 2005 and in the third quarter of 2007 was around 40p/therm.
1.3 The differential between large and small
consumers is justified by the higher transmission, distribution
and administration costs associated with small consumers and there
is no evidence that these costs have more than doubled over the
two year period.
2. PERSONAL INTRODUCTION
2.1 I have 40 years' experience in the energy
industry, most of it in senior commercial positions buying or
transporting gas.
2.2 My last employed position was a Director
of Gas Transportation at British Gas.
2.3 I now work as an independent commercial
gas advisor and have worked in several countries.
3. GAS PRICES
2004-07
3.1 Chart 1 shows how gas prices to non-domestic
consumers[276]
has varied, depending on size, between the first quarter 2004
and the third quarter 2007.
3.2 Until the third quarter of 2005 the
prices moved more or less in line.
3.3 In the fourth quarter of 2005 there
was a substantial increase in all prices and thereafter prices
no longer moved in line, as the prices to the largest consumers
dropped back to around their original level, while prices to the
smallest consumers remained high.
Chart 1
4. GAS PRICE
DIFFERENTIALS
4.1 Chart 2 shows the differentials between
prices to the largest consumers and others.
4.2 The historic differential between the
largest and the smallest consumers averaged between 9 and 18p/therm
until the third quarter of 2005. A significant differential is
to be expected because of the higher transmission and distribution
costs associated with the smaller consumers.
4.3 By the third quarter of 2007 this differential
had widened to over 40p/therm. This would appear to indicate an
increase in the profitability of the smallest consumers of over
20p/therm unless, of course, sellers were making a loss on sales
to the largest consumers in the third quarter of 2007.
4.4 There is here evidence that competition
is working well for large consumers, but progressively, less well
for smaller consumers.
4.5 Directly comparable figures are not
available for domestic consumers but the category of very small
non-domestic consumers can be considered a good prosy for domestic
consumers.
Chart 2
5 February 2008
276 Quarterly Energy Prices: Table 3.4.1 Prices of
fuels purchased by non-domestic consumers in the United Kingdom
(excluding the Climate Change Levy). Back
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