July 19 2002 – British firms will see a sharp drop in their electricity bills from October as a slump in wholesale power prices feeds through into the cut-throat industrial market, consumers and analysts said on Thursday.
Energy buyers have won reductions of up to 15 per cent in annual supply deals starting in October, squeezing the profits of utilities which up to now have passed on only part of the wholesale price slide to business customers.
“Intense competition has forced the major (power) suppliers to pass on to customers the reduction in wholesale prices,” said Schroder Salomon Smith Barney analyst Peter Atherton in a note to clients.
“This was certainly not the case in the April 2002 contract round, when prices fell only 8.2 per cent and gross margins of around 15 per cent were being achieved (by suppliers),” he said.
In contrast, household bills have risen recently as homeowners are much slower than businesses to switch supplier, reducing the pressure on utilities to keep prices low.
Wholesale prices crashed to record lows this year amid fierce competition between generators in a new trading market launched last year by the government to replace the England and Wales Electricity Pool.
Forward prices for the coming winter have dropped ten per cent since the start of this year, according to Reuters price assessments. Some generators have opted to switch off loss-making power stations as prices have slumped to levels close to, or even below the cost of producing electricity.
Consumers, sensing the chance to make big savings, have moved quickly to finalise annual supply deals earlier than usual, analysts said. Negotiations usually drag on through the summer.
“Buyers looked at the sharp price drop earlier in the year and advanced their tenders to make sure they benefited from the lower prices,” said Don McGarigle, electricity adviser to the MEUC, an industrial consumers’ group.
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