Reino Unido : November 19, 2008
The volatility of the UK electricity market has proven to be the nemesis of two of the smaller independent energy suppliers having been forced into administration over the last month. Both companies, Energy 4Business (E4B) and BizzEnergy, had a retail customer base of approximately 40,000 with neither supplier having access to its own generation.
In many ways the position of these two companies is analogous with the problems that have led to some of the major UK mortgage lenders getting into trouble – entering into longer term supply contracts and buying energy on the short term market without adequate hedging in place.
This illustrates the point about the importance in the electricity sector of balancing a large retail customer base with access to generation, preferably wholly owned. Centrica has been well aware of its exposure, which has prompted it to enter into discussions with EDF to acquire 25 percent of the new holding company for British Energy and its portfolio of nuclear and thermal power stations.
Interestingly, it is Centrica that has benefited from the collapse of both E4B and BizzEnergy. In the first instance when E4B went into liquidation, to ensure continued supply to E4B’s customers the Regulator, Ofgem, invoked supplier of last resort legislation and the customers were transferred to British Gas Business (the business arm of Centrica). In the case of BizzEnergy, Centrica paid £3.5million for the company’s customer contracts thereby ensuring continued supply to these customers. Tellingly, Centrica were not interested in purchasing BizzEnergy’s upstream supply contracts
Fortunately NUS was little affected by these market developments as we had relatively few customers supplied by either E4B or BizzEnergy. However, as soon as we heard about the developments, our consultants contacted their customers who were affected to explain the situation and to assure them that they would not be left without supply. For our E4B customers, we were able to move them away from supplier of last resort rates to more attractive contracts.