Blog: GB Energy meets its end; big six freeze prices; Pennon, South Staffs unite

In her news editor’s blog for Utility Week, Lois Vallely rounds up some of the big stories of the week (or in this case, the month).

At the end of November, GB Energy Supply met its end – the first of the new entrants to feel the sharp end of rising wholesale prices (as predicted by analysts in the summer).

Back in March, the company’s managing director Luke Watson had told Utility Week, somewhat brazenly, that it was “very conscious” of volatile wholesale prices, and was “monitoring them three times a day” – words which have since come back to bite.

A decline in wholesale gas and power prices in 2015 gave smaller suppliers an advantage, lulling them into a false sense of security, as they could buy energy at short notice while larger suppliers tend to purchase energy one or two years ahead. This led to cheap tariffs, which some are now struggling to sustain.

Independents have been quick to come forward and give their views on the demise of their peer, and make sure customers know that they are trustworthy...

Flow Energy managing director Andrew Beasley says: “What is important in light of this announcement is that customers do not now feel deterred from selecting challenger suppliers.”

Bristol Energy managing director Peter Haigh tells Utility Week reporter Saffron Johnson that companies “need to encourage customers to be curious about their provider and understand their ethos and values”.

Green Energy UK chief executive Doug Stewart says: “We have been in business since 2001, we have grown slowly and profitably within our own cash constraints. We have no debt. And because it’s been controlled and slow, its stable.”

Good Energy managing director David Brooks says: “This year we’ve seen some suppliers tempting customers with what appears to be loss-leading deals. But it’s clearly unsustainable. Wholesale power prices have spiked and, unless they can forward buy their power in times when it was cheaper; it is inevitable that those loss-leading suppliers will put their prices up.”

Some, such as Ecotricity and Ovo, have already been forced to increase costs because of rising wholesale prices, and others are bound to follow.

As if to add insult to injury, four suppliers – three of them big six – have done some good, announcing that they will freeze their prices until at least March.

Good Energy threw down the gauntlet in October. SSE – the master of the price freeze – followed suit in November, and British Gas and Eon jumped on the bandwagon this week (how many metophors can you squeeze into one sentence?), increasing pressure on the remaining big six suppliers to do the same. This has been a refreshing run of stories, as we’re used to reporting on the big six increasing their prices at this time of year.

In an unlikely turn of events, Storm Angus caused the partial severing of the UK’s interconnector with France – it is believed that the cables were cut by a shipping dragging its anchor along the sea floor. Analysts at ICIS say this could bring down British power prices over the winter. ICIS power editor Jamie Stewart told Utility Week reporter Tom Grimwood the outage could mean UK power prices will be lower in delivery over the winter, because the outage will limit the amount of power that can be sent out of the country, so more supply will stay in the national market.

Strength in numbers

Meanwhile in the water sector, exciting news – Pennon is expanding its ever-growing water empire by joining forces with South Staffordshire Group, to create the fourth-largest retailer in the non-household retail market (the first, second and third being Water Plus, Castle Water and Business Stream respectively).

Pennon Group will retain an 80 per cent share and South Staffordshire Group will take the remaining 20 per cent in the enlarged Pennon Water Services. ‘Source for Business’ will be the out-of-area national brand name and in-area, the separate companies will retain their brand names – South West Water Business; Bournemouth Water Business; South Staffordshire Water Business; and Cambridge Water Business. The combined business will have around £170 million of revenue, and approximately 8 per cent of market share – 180,000 accounts.

The reason Pennon chose South Staffs? Strength in numbers.

Chief executive Chris Loughlin told me: “There is strength in being together, for economies of scale and to reduce our operating cost to serve. We want to move together with a like-minded company, and South Staffordshire has been renowned for being one of the more entrepreneurial parts of the water sector. They seem a good strategic fit for us.”

In other water consolidation news, an unexpected bidding war has broken out between Severn Trent and investment firm Ancala. Both are after water-only company Dee Valley, which analysts say is a “safe bet” investment in a time of political and financial uncertainty.

Dee Valley’s chief executive Ian Plenderleith told me: “We have become one of the better-performing companies, and in some cases the best-performing, in the sector. I am sure the current financial environment makes us – a well-performing company within a stable regulatory environment – an attractive proposition.”

As it stands, Severn Trent looks likely to emerge victorious.

Oh, we also found out how much Castle Water will buy Thames Water’s business customers for – it’s £99 million.

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