Thursday, 27 March 2014

Those Wicked Energy Companies - SSE Breaks Ranks

... and offers a 2-year price freeze.  That'll be interesting, both for them and their shareholders.  Because the underlying wholesale energy costs they face are anything but frozen, as a glance at the graph of what happened to prices in 2008-9 will confirm.  So what have they done - hedged a very large chunk forward?  But what if they attract many more customers - or will they just stop taking new accounts?  And what if they lose a heap of customers, and the hedge goes out of the money?  One trusts they have thought this through.

Because at the very same time as taking on this fairly substantial forward spec position, they are also effectively giving a profits warning, suggesting a reduction in their resilience to future shocks.  Breaking ranks, or breaking the bank?  Maybe that lies behind the parallel announcement of a voluntary separation of the business into independent companies: put all the risk in one of them at let it sink if necessary?

The politics of this are amusing.  It's pretty obvious how Ed "he's had a bad week so far" Miliband will spin this - he's started already - but he needs to watch out because (a) SSE has explicitly linked their retail play to big job cuts plus abandonment of a serious tranche of offshore windfarm development - the inevitable consequence of putting the squeeze on the Big 6, as we have said here many times before.  Wonder what his green and Union friends think about that particular trade-off.   And (b) it's easy for the Tories, and indeed Joe Voter to say: well then we don't need Mr Miliband's freeze at all  We might add (c): SSE itself attributes its move partly to the coalition's lifting of various green impositions, exactly as Cameron is crowing.

Yesterday's referral of the Big 6 to the CMA is, on balance, probably a good thing, because it should result in better focus than Ofgem has managed on improving wholesale market liquidity:  That is 99% of what needs to be done on the regulatory front; and breaking up the verticals may have to be the way to do it (another oft-rehearsed C@W topic).

But the Big 6 do need to get their arses into gear.  If one compares the switching service provided by telecomms firms (and even the bank these days) with what you get from the energy co's, it is not a happy comparison.  They just haven't made the step-change needed to provide 21st century customer service, despite laborious incremental improvements on their 1990's-vintage set-ups.  Their systems are crap (believe me, I know about this) and they've just limped along.  How SSE or any of their peers fix their share of this problem at the same time as slashing staff numbers is anyone's guess.

Still, perhaps this is a bit of a watershed.  Just in time for Cameron to claim some credit ?  Probably not :  but hey, he might do so anyway!



CityUnslicker said...

Super posts this week Mr ND. Will save mine for tomorrow.

I think these guys are nuts. Do you think they watch the news or get out much?

I somehow don't see gas prices or oil going down with Russia sabre rattling in the the coming years

tolkein said...

Switch to Ovo Energy. I was threatened with a 9% increase from E-on so shopped and for same usage will see a 15% cut in bills. We need more competition and encouragement for new entrants.