Scottish Power tells Brit-Govt to back free markets or ‘fully regulate’ UK energy sector as profits slip 10%

With quarterly pre-tax profits slipping by more than 10%, a Glasgow-based Big Six gas and electricity provider yesterday challenged the Brit-Govt to back free markets or ‘full regulate’ the UK energy sector.

Scottish Power also revealed that it had lost another 120,000 customers in the three month period to 30 September 2017 – compared to 5.34 million customers in 2016.

Against a backdrop of widespread consumer mistrust of the Big Six over prices that rise like rockets, but fall like leaves and a negligent corporate culture that penalises loyal customers by ramping them up on standard variable tariffs unless they actively switch to rival independents, the Brit-Govt. is also drafting a new statutory price-cap to impose on prices.

The Competition Authority (CMA) last year found that consumers are over-paying a total of £1.4 billion a year for energy prices than they should in a ‘truly competitive market’.

And last week, the Business & Energy Minister Greg Clark berated the Big Six in particular for abusing the trust of millions of their customers where loyal and long-standing gas and electricity consumers were ‘punished for their loyalty’ by not regularly switching to alternative independent providers.

The market-dominant Big Six providers (who command around 85% of the British energy supply market) also face existential reform in the Helm Review of the Cost of Energy, which wants far greater competition and clarity in the retail energy markets.

And yesterday, Big Six rival – the Perth-based SSE utility – bombshelled the sector by breaking ranks by announcing its plans to abolish the industry’s controversial standard default tariff.

Keith Anderson
Keith Anderson

But Keith Anderson, Scottish Power Chief Corporate Officer – stung by the SSE strike – defended standard variable tariffs and demand regulatory clarity from the Brit-Govt.

He said: “In Retail <gas and electricity supply> we have more customers on fairer deals than any other Big Six suppliers and we are the only bigger company to have increased its market share since 2011.  We believe that putting our existing customers before new customer is the best way to compete in this marketplace.  That is why we  work hard to reward our customers’ loyalty by getting them onto better deals.

“Our view remains that the proposed price cap will not to help to engage those customers who could still find a better deal. It will be bad for consumers, energy companies big and small, as well as investor confidence.  

“The key question the government needs to answer is whether they still believe customers benefit most from free market competition.  If they do, any intervention must be designed to increase consumer engagement, which is the biggest thing wrong in this sector.  

“Otherwise, we would urge the Government to opt for a fully regulated market.  We need clarity one way or the other.”

Scottish-British Gas owner Centrica has plunged to 14-year lows on the FTSE 100 while City sources claim that SSE is considering quitting the market entirely.

During the quarterly reporting period, Scottish Power’s pre-tax profits across all three divisions (Renewables, Energy Networks and Generation & Supply) fell by 10.7% from £925 million in 2016 to £825.3 million this year, as shown below in the divisional breakdown;

  • Energy Networks:  EBITDA: £567.2m – compared to £580.9 Q3 2016 (down 2.4%)

The EBITDA for SP Energy Networks is in-line with expectations, based on the investment phasing for the RIIO-ED1 and RIIO-T1 regulatory settlements. Approximately £660 million is being invested in the Transmission and Distribution Networks in 2017.

  • Generation and Supply: EBITDA: £46.5m – compared to £187.1m Q3 2016 (down 75.1%)

Domestic electricity demand dropped by 6.8% compared to 2016.  Customer gas demand also dropped by 6.6%, due to milder weather in 2017.  As a result, the Retail business made a smaller contribution to EBITDA  (-£92.9 million).  Customer numbers at the end of Q3 2017 were 5.22 million against 5.34 million in Q3 2016. The Generation business also saw its contribution to  EBITDA  decline (- £47.7 million) due to less output and lower margins on ancillary services.  

  • Renewables: EBITDA: £211.6m – compared to £157m Q3 2016 (up 34.7%)

Total wind power production has increased by 34% so far in 2017, with a 37% uplift in onshore wind alone during Q3 compared to the third-quarter 2016. The £650 million two-year programme to construct 8 new onshore windfarms in Scotland was completed in Q3. Scottish Power Renewables also achieved the milestone of 2 gigawatts of renewable energy capacity in the UK.

Net profits in the period at Iberdrola – which owns Scottish Power – totalled €2.41 billion (+18.4%) thanks to international businesses which compensated for poor results in Spain.

8 Nov 2017

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