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Industry news
Opec head sees oil price hitting $200 a barrel
Wednesday, April 30, 2008
The president of Opec has warned that the price of oil could hit $200 (£100) a barrel, spelling more pain for the major crude-consuming economies.
Chakib Khelil said there was nothing that the oil producers' cartel could do to bring down the high price, which he blamed on geopolitical tensions and market speculators.
His comments, coming as oil touched a record $120 a barrel on Nymex at one stage yesterday, are seen as rejecting pleas from America and Europe for Opec to turn on the taps and help rein in the price. Mr Khelil, Algeria's energy minister, said there is no evidence of a shortage of oil on world markets.
He told El Moudjahid, Algeria's state-owned newspaper, that oil stocks in the US were at a five-year high.
The price is being pushed up by the weak dollar, investment funds speculating on a higher price, and fears over supply shortages created by events such as the Grangemouth strike in Scotland and another at ExxonMobil's operations in Nigeria.
In such circumstances, Mr Khelil said he could not rule out oil going to $200 a barrel.
While the power of Opec, which supplies about 35pc of the world's needs, is no longer as great as in the 1980s and 1990s, critics within the US government argue that its members could do more to increase supply.
The rising price of crude is not hurting the oil companies, however. Royal Dutch Shell is today expected to report record first-quarter profits, while BP should turn in one of its best quarterly performances for two years.
During the quarter being reported, oil reached $100 for the first time. Shell's Q3 profits are forecast to rise 5pc to around $6.88bn, with BP's rising about 32pc to $5.26bn. Profits from refinery operations will fall, however, as the cost of crude oil rises.
In February, BP estimated that output will rise 13pc during the next five years to about 4.3m barrels a day. Tony Hayward, the chief executive, said BP will sustain production of at least 4m barrels a day until 2020 even without new finds.
Oil prices came off their day highs, with Brent trading just 30 cents higher in late trading at $116.64, and Nymex 36 cents higher at $118.88.
This article was featured on The Telegraph website.
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British Energy decision is pivotal for future of UK nuclear industry
Wednesday, April 30, 2008
The deadline for the next round of bids for British Energy (BE) has been brought forward, as the Government seeks a swift decision on the future of the UK's nuclear industry. Rothschild, BE's financial adviser, has told potential bidders that it would like to see detailed offers by May 9.
Some of Europe's largest energy companies are considering bidding for BE, which has a pivotal role in the Government's plans for a new generation of nuclear power stations.
France's EdF, Germany's RWE and Britain's Centrica, the owner of British Gas, have submitted indicative proposals.
The companies have under two weeks to firm up their offers, including if they intend to bid on their own or form joint ventures.
It was thought the next round of offers would not have to be filed until the end of May at the earliest. But a Whitehall source said yesterday: "We don't want this dragging on".
The Government, advised by UBS, has asked Rothschild to sift through the initial offers with a view to having a sale completed by early summer.
It is believed that Centrica has warned the Government it would resist strongly any attempt to exclude it from BE's sale.
It would struggle to muster the financial firepower to bid for BE on its own and favours teaming up with EdF, which runs France's nuclear industry. EdF has the money and expertise to go it alone.
John Hutton, the Secretary for Business and Enterprise, has said Britain's proposed new nuclear programme would create 100,000 jobs. But Centrica has told him this could only be achieved if there was direct involvement by a UK company, and one with some control over the intellectual property rights to the technology.
The Government, which owns 35pc of BE, has final say over the sale and is said to have become "hugely sensitive" to the potential controversy of a takeover.
"Basically, Number 10 does not want to get mired in another round of bad headlines," said a source.
BE owns eight nuclear reactors in the UK, sites on which some of the proposed new power stations are likely to be built. Last week, EdF was tipped as planning an 880p-a-share bid, valuing BE at £9.1bn. "That's a daft valuation," said an insider yesterday.
Meanwhile, Centrica is in talks with private equity firms, including Riverstone Holdings, about joint funding for a major wind farm off the coast of Lincolnshire.
Centrica warned earlier this year about the rising costs of the project, which may now be more than £500,000. The company is also in talks with Blackstone and Apax.
The construction of more wind farms is central to the Government's ambitious targets to cut greenhouse emissions by producing 33 gigawatts of electricity from offshore wind by 2020. But Centrica and other energy companies say costs are spiralling upwards because of higher raw material prices.
This article was featured on The Telegraph website.
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Oil giants Shell and BP record combined profits of £7 billion
Wednesday, April 30, 2008
OIL giants Royal Dutch Shell and BP made combined profits in excess of £7 billion during the first three months of this year, figures showed today.
Shell reported first quarter profits of 7.7 billion US dollars (£3.92 billion) for the three months to March 31, while BP posted 6.59 billion dollars (£3.32 billion).
The figures have been buoyed by rising oil prices and come at a time when motorists are paying on average almost £5 a gallon at the petrol forecourt.
The figures from both firms were well ahead of the equivalent periods last year – 12% higher for Shell and up 48% for BP – while the figures were also much stronger than forecasts in the City.
Average oil prices in excess of 90 US dollars a barrel have boosted the firms' exploration and production arms and offset tougher conditions in refining and marketing.
Shell made a surplus of 27.6 billion US dollars (£13.9bn) in 2007, equivalent to more than £1.5 million an hour.
At the time of its annual results, the Anglo-Dutch company said the profits figure was matched by the amount of money it spent on securing new energy sources.
The company says most of its money comes from exploration and production, rather than from selling petrol on UK forecourts.
BP's profits fell by a more than fifth to 17.29 billion US dollars (£18.76bn) last year as problems with its US refineries continued to dog the business.
This article was featured on The Scotsman website.
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Higher prices boost BG profits
Wednesday, April 30, 2008
BG Group boosted first-quarter pre-tax profits by 73 per cent to £1.35bn and forecast higher full-year earnings for its liquefied natural gas division.
The results were unveiled on Wednesday as the UK energy group confirmed a $12bn bid for Origin Energy of Australia, which would build on its recently completed acquisition of a stake in Queensland Gas.
Operating profits rose 70 per cent to £1.4bn on higher oil and gas prices and production volumes. BG said that even with constant prices and exchange rates, operating profit would still have risen 24 per cent.
The exploration and production division remains the driver of BG operating profits, accounting for two-thirds of the total. In the period it increased profits by 50 per cent, largely due to price increases as volumes only rose by around 4 per cent as the contribution from the Buzzard field in the North Sea entered the numbers.
The burgeoning LNG business more than trebled operating profits to £383m, driven by Asian demand. BG now estimates its LNG business will deliver full-year operating profit of £1.1bn. In 2004, it contributed less than £100m.
The smaller transmission and distribution business saw operating profits halve to £20m, largely due to changes in the exchange rate of the Brazilian Real. Power generation earnings fell slightly to £41m.
The earnings were well ahead of market forecasts but the share price slipped 3 per cent to £12.67 in early London trading as investors digested news of the bid for Origin.
This article was featured on The Financial Times Website.
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Mobile phone firms overcharge by £1bn a year
Sunday, April 27, 2008
The "big four" mobile phone companies have been accused of overcharging their customers by £1 billion a year with artificially high surcharges for calling between networks.
The allegations are being made against Orange, T-Mobile, Vodafone and O2. In evidence to be submitted to the Competition Commission next month, BT and 3, the mobile phone company, have accused Ofcom, the telecoms regulator, of sanctioning the charge, which far exceeds the actual cost to the companies of connecting a call.
Tim Lord, regulatory director of 3, said: "High wholesale charges for calls to mobiles operate as a hidden tax on all consumers, limit the impact of competition and keep retail prices high.
"It's no great surprise that the incumbent operators are fighting tooth and nail to retain such a system. It is more difficult to understand why Ofcom appears to be on their side rather than supporting lower prices and more vigorous competition which would help the UK consumer."
A separate inquiry is also being conducted by the European Union. Recommendations to be published this summer by Viviane Reding, Europe's commissioner for information, society and media, could lead to a sharp cut in the charge and might enable consumers to enjoy the kinds of unlimited call packages seen in America.
The dispute centres on the so-called termination rate, which allows mobile phone operators to charge other networks and fixed-line companies such as BT to connect calls.
This is in addition to the charge that customers pay their own provider for making the call.
Ofcom allows the four main providers to charge consumers a termination rate of 5.1p a minute for each call routed through their network. BT argues that the amount should be reduced to 3.6p, which would save consumers £1 billion a year.
Reding has said she would like to see mobile termination rates drop to about 1p, roughly the same as charges levied by fixed-line providers.
The present fee includes an administration charge imposed by the companies and an additional 0.3p per minute intended to subsidise cheaper mobile phone contracts for people on low incomes. 3 is in favour of abolishing the charge altogether. It says that this could lead to an overall fall in customers' bills of 50%.
Ofcom defended the charges and said: "If the rates were too low the companies wouldn’t be able to recover their costs. The system is entirely fair."
This article was featured on The Times Online website.
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Study says smart meters will cost £16.1bn will cost £16.1bn
Friday, April 25, 2008
The installation of smart meters across the country could cost more than £16 billion, dwarfing earlier industry estimates, according to figures released by the Government yesterday.
The £16.1 billion estimate was contained in a preliminary study of the economics of smart metering by Mott Macdonald, the engineering firm. It stands in stark contrast to industry claims that the installation of the meters in 45 million homes and businesses – a process which could take up to 20 years – would cost only £6 billion.
Smart meters, which measure exactly how much energy is used at all times, are designed to encourage efficiency. As well as helping consumers to identify ways to reduce their usage and their bills by turning off electrical equipment and using more energy-efficient devices, they enable power companies to introduce off-peak deals similar to those offered by telephone operators.
They will allow consumers to be rewarded for using energy at off-peak times, such as between 1am and 5am, enabling a reduction in the total generating capacity necessary to power the UK. They should lead to more accurate billing by ensuring correct data is sent back to suppliers leading to accurate monthly bills.
The Government, industry and consumer groups agree the UK’s existing electricity meters need to be replaced but officials and campaigners have given warning that companies have underestimated the cost of installation, which will be passed on to consumers through their utility bills.
Yesterday the Government edged closer to ordering nationwide use of the new meters by informing energy companies that powers to do so would be included in a new Energy Bill. It stopped short of saying it would definitely back the scheme, pointing out that there were still big questions over cost and complexity and that more studies were necessary before a final decision could be taken.
In a letter to Britain’s leading power companies, the Department of Business said that a final decision had been delayed until November because the Government is not yet convinced that the meters will be cost-effective.
“We wish to deepen our understanding and, as far as we can, resolve remaining uncertainties before we take those final decisions,” the letter stated.
A spokeswoman for the Department said yesterday that the £16.1 billion figure was the highest estimate of several in the report. They varied according to how the rollout would be implemented, the likely cost of the metering equipment and the timeframe.
Mott Macdonald said that the cost could be only £7.5 billion if the industry took a more gradual approach.
The Energy Bill enters its third reading in Parliament next week, making this the last opportunity for the Government to amend it. “These amendments give Government the powers it needs to take the next steps on smart metering subject to resolving remaining uncertainties,” the letter said.
The plan is for companies to begin installing the meters in 2010, with the implementation lasting for years. But the Government and industry cannot agree the cost of the programme. Centrica, the owner of British Gas, said its own studies showed that the rollout could be achieved for £6 billion.
Sam Laidlaw, the chief executive, said: “We are convinced there will be a significant positive return for the UK. This stems from our own detailed research, presented to government.”
Clever clocks
Smart meters
— allow consumers and energy suppliers to monitor how much energy consumers are using 24 hours a day
— benefits include greater energy efficiency, more accurate billing and the introduction of off-peak energy tariffs
— if approved by the Government, the plan is for companies to begin installing the meters in 2010, with most homes fitted by 2020
— the Energy Retail Association says the programme would cost about £5 billion, but estimates by Mott Macdonald, an engineering firm, commissioned by the Government says that it could cost far more – as much as £16 billion
This article was featured on Times Online.
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Offer helps EU ease reliance on Russian gas
Monday, April 14, 2008
The European Union has broken through in efforts to lessen its dependence on Russian natural gas with a concrete offer of extra supplies from Turkmenistan.
Benita Ferrero-Waldner, EU external relations commissioner, said the Turkmen president had last week guaranteed that 10bn cubic metres of gas a year would be available for the EU.
President Gurbanguly Berdymukhammedov's pledge comes amid intense competition for access to Turkmenistan's huge gas reserves since the death last year of Saparmurat Niyazov, its isolationist former leader.
Mr Berdymukhammedov has promised increased supplies to Russia, the biggest buyer of Turkmen gas, through a proposed pipeline, and to China via a long trans-Asian route planned for completion next year. A southern route to Pakistan has also been mooted.
The US and EU have been pressing for gas to be shipped west across the Caspian, ideally through an undersea pipeline that would avoid Russian territory and connect to the proposed 3,300km Nabucco route, which would link the Caspian and central Europe.
Mrs Ferrero-Waldner told the FT after returning from the central Asian country: "The president... gave us assurances that 10bcm will be set aside for Europe in addition to possibilities in new fields to be tendered."
It was not a "vast quantity", she said, but "a very important first step".
Industry experts say it is unclear how or when the gas could be delivered. Virtually all current Turkmen export production, of 50bcm, is covered by contracts running to 2028. The country has big additional reserves awaiting development, but it faces technical difficulties and legal and political objections from Russia and other Caspian shore states. An undersea pipe to Azerbaijan that would connect to an existing west-bound route could face similar challenges.
There were three short-term options, Mrs Ferrero-Waldner said: to close a 60km gap between Azeri and Turkmen offshore installations with a mini-pipeline; to build an onshore link to Kazakhstan to connect with a route to Azerbaijan; and to compress the gas into liquid form and take it by tanker across the sea.
Mrs Ferrero-Waldner said the Turkmen offer, which would run from next year, required European business to invest in pipeline infrastructure and exploration.
Reinhard Mitschek, managing director of Nabucco, said it was on track to start building the €5bn ($7.9bn, £4bn) project in 2010. The first phase, from Austria to Ankara, would be completed in 2013. It would connect with a pipe running east and then be extended to the Turkish border.
The first gas for the pipeline would come from Azerbaijan's Shah Deniz-2 offshore field, which would initially supply 8bcm annually. Other potential suppliers included Kazakhstan, northern Iraq, Egypt and Iran, Mr Mitschek said.
At its full 30bcm a year capacity, Nabucco will supply only a small portion of Europe's 500bcm needs. The bulk of the rest will continue to come from Russia.
This article was featured on the Financial Times news website.
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WWF claims carbon market rewards generators and punishes public
Monday, April 14, 2008
Environmental campaign group WWF has denounced the latest round of the EU's Emissions Trading System, saying its heart is in the right place but 'design faults' mean it rewards those burning the most coal.
The scheme, designed to cut the continent's carbon emissions, will perversely provide a windfall for the biggest emitters, says the WWF.
The conservation charity asked carbon market analysts Point Carbon to estimate the windfall profits in five European countries - the UK, Germany, Spain, Italy and Poland - over the current five year phase of the scheme.
The subsequent report suggested the figure could be anywhere from Euro 23 billion to Euro 71 billion.
In a nutshell, electricity generators can benefit from the scheme when energy prices rise to take into account the cost of carbon emissions but companies receive the bulk of the necessary allowances free of charge under the National Allocation Plan of the country they are operating in.
"Windfall profits are highest in countries that have a high level of pass-through of CO2 costs into wholesale power prices, countries with emissions intensive (coal) plant setting the price the majority of the time, and countries that allocate the highest percentage of free allowances to the power sector," Point Carbon said in the report.
WWF has always supported the EU ETS as a crucial mechanism to tackle emissions within the EU, but notes that careful implementation is required for such schemes to achieve their potential.
"We have long been critical of the ETS design faults that provide cash for coal in the name of emissions reductions", said Sanjeev Kumar, WWF Emissions Trading Scheme Coordinator at WWF. "But Europe's experience should be a stark warning to the rest of the world on the danger of free allocations of pollution permits."
This article was featured on Edie.net
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Better Batteries Dramatically Boost Wind Energy
Monday, April 14, 2008
The giant wind turbines on the west coast of Ireland stand not only on the geographical limits of Europe, but also on the cutting edge of a revolutionary technology that makes wind power more reliable and valuable.
The 32 megawatt (MW) Sorne Hill wind park will be Europe’s first to integrate a large scale battery back-up system that ensures a reliable supply of electricity regardless of how the wind blows.
“The battery enables large amounts of energy from wind or solar power to be stored, managed, controlled and sent into the electricity grid when it is needed. It doesn’t matter whether the wind is blowing or not; the battery makes the electricity output predictable and reliable,” said Tim Hennessy, CEO of VRB Power Systems, the battery manufacturer based in Vancouver, Canada.
Analysts say the potential market is huge for technology that can improve the reliability of large amounts of energy from wind and solar power. Wind power is not generally considered dispatchable or “firm” because wind is intermittent and fluctuates greatly on all scales (e.g., minute by minute, day, season). Furthermore, the wind does not always blow when electricity is most needed and therefore valuable.
Battery storage is particularly useful when wind power feeds a grid belonging to a so-called “island” such as in the UK and Ireland. Spain, on the Iberian Peninsula, is also effectively an electrical island because it has limited interconnections with France in the north and Morocco in North Africa.
By contrast, the electricity grids of Germany and Denmark are interconnected with those of their neighbors. Their excess wind power goes all over Europe; the extensive and varied demands of the grid negate the need for a huge storage system. In addition, Germany uses hydropower and biomass to back up wind and compresses air into salt mines to store excess energy.
With few dams for hydropower and few salt mines, the “electrical islands” of Ireland and Great Britain have fewer options. As a result, they will probably need large amounts of battery storage as they expand their use of wind power.
Both the UK and Ireland are planning wind parks on a massive scale. The UK plans for 33 GW of capacity of offshore wind power by 2020. Ireland already has 1,000 MW of wind power and plans to install 2,400 MW more by 2016 and 4,300 MW by 2020 to reduce their dependence on imported fossil fuels and cut greenhouse gas emissions.
Thus, the 2 MW battery in Sorne Hill, slated to begin operation in 2009, could be the start of something big. Hugh Sharman, a contractor with VRB, estimates that Ireland may need as much as 1,000 MW of battery storage capacity by 2016.
As oil and gas prices continue to rise, battery storage systems become even more cost effective. A MW of wind electricity generated in Ireland costs 70€ ($106), which Sharman says is much cheaper than generating the equivalent electricity using natural gas. The lower cost of wind generation helps offsets the high initial investment costs of the battery, and the battery would enable wind power to be delivered when it is most valuable: electricity could be stored during off-peak hours when the price is low and fed into the grid in peak hours when the price is higher.
If the UK proceeds with its plan to install 33 GW of wind capacity by 2020, it could use as much as 12,000 MW of battery storage to balance out the system, Sharman said. Under the plan, nuclear and clean coal will supply a base load of 20 GW augmented by 33 GW of wind power. Without batteries, the base load would be difficult to supply with a fluctuating wind power supply.
The flow battery was developed in the early 1980s at the University of New South Wales in Australia, and further refined and brought to market by VRB Power Systems. It generates current by moving oppositely charged electrolytes in a vanadium sulphate solution between positively and negatively charged half-cells.
The battery charges when the wind turbines produce more power than is needed. When the wind speed drops, the battery almost instantaneously feeds the electricity into the system. In this manner, it can make wind power up to 95 percent constant.
VRB’s battery can be charged and discharged more than 10,000 times without significant deterioration, compared to only 2000 times for conventional lead-acid batteries. It also emits less key environmental pollutants such as CO2 and Nitrogen Oxide through its life cycle and is made without toxic metals (lead, cadmium, zinc, and nickel).
In places like Europe and California, which have relatively aggressive CO2 reduction laws, wind power augmented with battery storage is likely to become a key electricity source over the next several decades. Further, as cities and counties take control of their energy procurement through California’s Community Choice Energy law to boost the renewable content of their power mix, large scale battery systems are one of few viable options for realizing the ultimate goal of a reliable and stable, 100% renewable electricity grid.
This article was featured on The Cutting Edge News
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BT's new chief Ian Livingston throws down gauntlet to Ofcom
Sunday, April 13, 2008
THE new BT chief executive, Ian Livingston, is challenging the telecoms regulator Ofcom to make sweeping changes to his company’s universal service obligation (USO) before he will commit to investing billions of pounds in a new fibre-optic network.
He wants firmer assurances from Ofcom chief executive Ed Richards that BT will not be left with soaring running costs and thinner profits if it installs fibre optics designed to carry a growing volume of television programmes and data to homes.
"We will not spend material amounts of money that will guarantee that we lose money for shareholders," said Livingston, who takes over from Ben Verwaayen in June. "It's just not going to happen."
The key definition of its obligation – rooted in BT's history as a state-owned telecoms monopoly – is that it must offer a fixed-line service at an affordable price for anyone in Britain who wants one.
Livingston argues that this needs amending if it is to divert cash into more sophisticated services and move away from its legacy of copper wires.
"We want changes to the USO to reflect a fibre world," he said. "There are 200-odd service providers. Why should all the USO fall on BT Retail?"
BT's key concern is that it is not forced to continue maintaining its old copper network when new fibre infrastructure has been built, hence doubling its operating costs.
It also wants assurances that it will not become liable to pay compensation to rival operators such as Carphone Warehouse, which have spent millions installing their own equipment in telephone exchanges to control the "last mile" running into the home.
The government wants BT to commit to an upgrade of the broadband network that could cost as much as £15 billion to keep up with connection speeds of 100 Megabits per second being deployed in France and Germany.
BT is testing the water by installing high-speed fibre optics at a new-build scheme in Ebbsfleet, Kent.
The upgrade issue was back in the spotlight last week when rival internet providers moaned that the runaway success of BBC's iPlayer catchup service was clogging up the network. Britain’s average broadband speed is currently 4.6Mb per second.
BT has been campaigning for other parts of its USO to be reduced or ended. In particular, it sees little point in maintaining 24,000 payphones that consistently fail to make money because of the popularity of mobile phones.
"We have got the hurt and the restrictions of the legacy," said Livingston. "Some of the restrictions have been removed. Ofcom has been a bold organisation because it would be easier not to change things.
"But we still have got to move on. Things that were rigid in the past world have to be changed for the future."
In 2006, Ofcom estimated that the cost to BT of the USO was between £52m and £74m a year.
This article was featured on The Times Online.
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Outrage as the cost of BT calls goes up 1,900%
Sunday, April 13, 2008
BRITAIN’s largest landline provider has slumped to the bottom of the customer satisfaction league tables for the first time as the backlash against its sneaky charges grows.
More than 3m BT customers say they are dissatisfied with their service, according to comparison firm Uswitch.
It comes after the phone group, with about 10m customers, raised its line-rental charge for the majority of users on April 1 for the first time in two years.
Those on BT Together Option 1, now known as the Anytime Weekend package, pay 1.5p per minute for evening calls instead of the previous 4.5p per hour – a 1,900% increase for a one-hour call.
There has also been growing resentment from customers who, if they do not pay by direct debit, are charged an additional £18 a year.
Earlier this month, Ros Fernihough, 62, from Walsall, West Midlands, lost her battle against BT after taking the firm to court over the charges. She said she will continue her fight.
Though Talk Talk has come second overall for the third year running, satisfying nearly eight out of ten of its home-phone customers, it may face a similar backlash after saying it will increase call rates from May 15.
It will replace a flat evening call charge of 4.25p to a 1.4p a minute rate – similar to BT’s 1,900% rise.
Daytime call charges outside a price plan will go up from 3p a minute to 3.9p a minute.
Talk Talk will also introduce a new £1.25 a month charge for those with paper bills, which will affect an estimated 1m customers.
Sky, part-owned by News Corporation, ultimate owner of The Sunday Times, which has been in the market for only 18 months, is ranked the best provider overall, winning in seven out of 11 categories in the survey.
Its phone package comes free with its bundled TV and broadband deal which costs £16 a month, although you still need to buy line rental costing £10 – a total of £26 a month.
From this month, BT Option 1, 2 and 3 packages have been replaced by Unlimited Weekend, Unlimited Weekend and Evening and Unlimited Anytime plans respectively, although the tariffs come with slightly different price plans.
BT has also introduced 12-month contracts for the first time, which are automatically renewed unless the customer opts out. Under the new price plans, an estimated 9m customers who receive their bills by paper will see the charge go up by 75p a month to £11.75 – netting the firm around £80m, according to Uswitch.
Customers on the Unlimited weekend package will receive free evening calls to landlines if they sign up to the 12-month contract.
This article was featured on The Times Online website.
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Severn Trent fined a record £35m after false figures inflated bills
Wednesday, April 09, 2008
WATER firm Severn Trent was yesterday fined a record £35.8 million and pledged to repay £10.6m to its customers after admitting an embarrassing catalogue of failures. The company was penalised by industry regulator Ofwat for deliberately providing false information and for poor customer service.
According to Ofwat, customers ended up paying higher bills than they should have done as a result of the firm's actions.
Severn, which has 3.7 million household and business customers, said yesterday it would hand back customers a total of £10.6m – or £2.40 per bill.
The firm also faces a further hefty fine for a separate case of misreporting involving data about leaking pipes.
Severn said it would be admitting two charges of reporting false leakage data to Ofwat after a lengthy Serious Fraud Office (SFO) investigation.
Ofwat stipulated that the £35.8 million punishment – which equates to 3 per cent of Severn Trent's turnover – must come out of shareholder funds and not be passed on to customers.
Ofwat said the firm had deliberately falsified customer service data in 2005 and before, including misrepresenting the numbers of customers who received no replies to complaints.
Regina Finn, Ofwat's chief executive, said: "Severn Trent Water's behaviour was unacceptable. The size of the proposed fine reflects how seriously Ofwat takes the deliberate misreporting of information."
Tony Wray, Severn's chief executive, blamed the previous management regime, saying it was "overly bureaucratic" and lacked sufficient controls.
Wray said Ofwat was "promptly alerted" when the false customer service data was discovered.
He added: "We fully acknowledge and accept that the company is responsible for its failures. There is no doubt that the previous regime and culture in place during the era from 2000 to 2004 was overly bureaucratic and lacked sufficient controls and procedures.
"Those who were responsible for the customer relations mistakes are no longer with Severn Trent and we apologise to our customers for their failings."
Severn serves a population of more than eight million people from the Bristol Channel to the Humber, and from mid-Wales to the East Midlands of England.
Two years ago the company was forced to apologise to customers after "deliberately miscalculated or poorly supported" data inflated bills by £42 million.
James Perowne, central and eastern chairman of the Consumer Council for Water, said: "The penalty should send a message to the rest of the industry that this behaviour is unacceptable, and while these incidents took place four years ago, they have had a serious negative impact on consumer confidence in the company."
MONEY DOWN THE DRAIN
THE record fine for Severn Water is the latest penalty imposed by Ofwat, which regulates the water industry in England and Wales.
In February, it fined Southern Water £20.3 million for "deliberately misreporting information and delivering poor service to customers".
Thames Water was fined £12.5m in September 2007 for failing to provide Ofwat with "robust" information and for its poor customer service systems.
United Utilities Water was fined £8.5m in June 2007 and Ofwat forced Thames Water to spend an extra £150m to repair pipes.
This article was featured on The Scotsman website.
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How Scotland is leading the way in living without mains power, water or sewerage
Sunday, April 06, 2008
Living "off-grid" - without mains electricity, water or sewerage - might sound like hell to a pampered city dweller, but it is a lifestyle that is attracting massive numbers of devotees, with many influenced by the example set by Scots.
Nick Rosen, a writer who travelled the UK in a camper van powered by vegetable oil to chronicle the lives of people living off the grid, has claimed that Scotland is a pioneer of the lifestyle.
Rosen released How To Live Off-grid: Journeys Outside The System, last week. It is the Domesday Book of a burgeoning subculture, documenting the bewildering mix of visionaries and eccentrics who have made the decision to become self-sufficient.
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What he found were people living in traditional yurts, sailing the canals in boats or living in eco-friendly palaces with every modern comfort but none of the pollution or carbon emissions.
Around 100,000 people in the UK are thought to be living off-grid, with a possible 5000 in Scotland, although accurate figures are extremely difficult to come by.
Rosen said: "In Scotland, I came across the most successful off-grid community, in Scoraig south of Ullapool in Ross and Cromarty and the most beautiful house, near Skye.
"There is a spirit of independence that's quite special and there are also the crofting laws, so that whereas the property laws elsewhere conspire against living off-grid, it's true to say they're less destructive of that kind of life in Scotland."
Advocates of the lifestyle do not have to shun electricity altogether, but use small hydroelectric power systems, solar panels or windmills to generate it, meaning that many off-grid communities can still be high-tech, with fast internet connections and sockets for iPods. Private needs are met by composting toilets, while low-emission wood burning heaters warm up the water. There are even solar-powered kitchen scales on sale for the ecologically-minded epicure.
First embraced by hippies, off-grid homes are now built by a vast range of people, encompassing eco-warriors, hermits and even those who have been priced out of the housing market.
When Alun Bush, the founder of the off-grid community in Scoraig, arrived in the area in the late 1960s, he shared the land with two vegetarians from Kent and a couple of farmers. Since he moved in and placed a newspaper advertisement calling for residents, the settlement has grown to around 80 people.
The isolated hamlet sits on land owned by Lady Jane Rice, the estranged spouse of Sir Tim Rice, the famed lyricist who has written for many West End musicals and Disney films. It can only be reached by foot or boat. All the houses generate their own power and collect their own water.
Bush said: "I was here as a crofter, and there were crofters here before me, then the hippies started turning up, and here we are. I was told I was a romantic. Thick is another way of putting it, I would suggest."
His intention was not to live ecologically, merely to follow the rural lifestyle that he had been accustomed to, after being brought up in a remote area of Wales.
Latter day off-gridders are mostly inspired by ecological concerns. Environmentalists are broadly in favour of the lifestyle, providing off-grid doesn't require the use of a polluting generators.
Stuart Hay, head of research at Friends of the Earth Scotland, said: "We're supportive of non-centralised power, people generating their own electricity from renewable sources where the extreme is being independent from the grid.
"It's of limited application and not for everyone, but good on anyone that does it as long as they're using the right technology to use it and not just using diesel generators."
Deciding to build an off-grid house does attract certain perks - such as grants of up to 30% to pay for solar panels - but people who want to live the lifestyle still need to abide by planning regulations.
One off-gridder, Steve James, is being evicted by his landlord after his £4000 house fell foul of local planning laws. He moved into the off-grid world for one reason: "Independence."
But, of his impending eviction, he added: "It's proof that you can't live without someone noticing you."
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Plunging into a new market
Thursday, April 03, 2008
The retail market for non-household water and sewerage customers in Scotland is now fully open to competition. As of Tuesday 1 April, uniquely in the UK, if not the world, more than 100,000 companies, councils, schools, hospitals and other public bodies have been free to switch their water provider.
The Scottish Government has warmly welcomed the opening up of the market, saying that resulting keener prices, innovation and improved customer service will be of major benefit to those able to choose from newly licensed water suppliers.
Any opportunity to benefit from the new competitive market will be of considerable interest to Scotland's public sector as it seeks to drive up efficiency and provide better, more streamlined services in response to the Government's public service reform agenda.
The chance to generate savings on bills that, for some bodies (just think of how much water is used to fill your local swimming pool) can run into six-figure sums is not one to be passed up lightly.
The new market is administered by the Water Industry Commission for Scotland (WICS) under a regime established by the Water Services (Scotland) Act 2005.
"Choice is good for Scottish businesses and public bodies," says Alan Sutherland, chief executive of WICS. "Scottish Water's retail arm, Business Stream, has already saved up to £10 million in the run up to April 1 to pass on to clients, and we anticipate more in the future."
The commission has licensed four retailers to offer services so far: Aquavitae; Satec; Osprey, (which is part of the Anglian Water group); and Business Stream. A further application by Ondeo, part of the international Suez group, is also proceeding through the process.
Licences are only granted to those judged sufficiently competent and financially viable to participate in the market and they contain various conditions to be policed by the commission.
Scottish Water will continue to own and operate the public water and sewerage networks, as well as continuing to provide water and sewerage services directly to its 1.5 million household customers.
In addition, it will now provide wholesale services, that is the physical supply of water and removal of sewage, to all licensed retailers on transparent, non-discriminatory terms under wholesale services agreements regulated by the commission.
Retailers are able to negotiate price and other terms with their customers, although they must usually also offer a default tariff and level of service to all customers on demand.
The default tariff and service are designed to help ensure that no customer is disadvantaged by the new market; the commission has set the default tariff at no more than the maximum charge that customers would have paid to Scottish Water if competition had not been introduced.
Given that it starts off with the lion's share of the market, Business Stream (Scottish Water) is also obliged to publicise the prices charged by it within two months of striking a relevant deal, as well as having to ensure its charges reasonably reflect costs.
The commission has established a simple, clear and user-friendly approach to regulating the market.
An independent body owned by and accountable to all market participants, the Central Market Agency (CMA), is responsible for keeping a record of which customers are served by which retailer and also for calculating the money owed to Scottish Water by each retailer in payment for wholesale services.
Interestingly, the Water Services (Scotland) Act 2005 also creates an opportunity for retailers to work with customers on projects that may, in turn, lead to a reduction in Scottish Water's costs.
In such cases, the commission has the power to permit Scottish Water to grant a discount on the wholesale charges paid by the retailer. This would happen where Scottish Water made an application to the commission, and there are processes in place to allow licensed retailers to make sure this happens. If the commission approved such a discount then the customer might well share the benefit with its licensed retailer.
Additionally, the commission has created the facility for customers to establish self-supply arrangements. In this context, a group of connected entities, such as members of the same corporate group or public body, can set up their own licensed retailer to negotiate wholesale terms with Scottish Water and allow them to benefit collectively as a result.
These self-supplied customers will not, of course, be able to benefit from the services offered by other retailers but would avoid paying a licensed retailer in addition to Scottish Water.
The introduction of competition in the Scottish water market is a significant challenge for public sector purchasers of water and sewerage services. At the very least it will mean revie
wing existing procurement arrangements for these services to ensure that they comply with the applicable rules on competitive tendering.
Now that public authorities have a choice in this matter, they will need to exercise it in an open, fair and non-discriminatory manner. More importantly, perhaps, these buyers, who make up a considerable slice of the market, will now have to consider how best to engage with those bidding for their custom with a view to striking the best possible deals in the interests of stakeholders.
However, how far savings made by those public bodies will be passed to you and me, in terms of cheaper swimming sessions for example, remains to be seen.
• Gordon Downie is a partner in Shepherd+ Wedderburn LLP's energy and utilities group and led the legal team that advised the Water Industry Commission on the introduction of the new competitive market.
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