More Price Increases:

Analysts are expecting further residential energy price rises in 2008 as UK energy suppliers seek to maintain their margins in the face of rising wholesale prices. Scottish & Southern Energy (SSE) became the last of the big six residential energy suppliers to raise its prices, announcing today that gas and electricity bills will rise by 15.8 pct and 14.2 pct respectively from April 1. Like all the UK suppliers, SSE cited high wholesale prices as the reason for the increase, saying in a statement wholesale electricity prices have gone up 90 pct and gas 100 pct since March 2007. While the energy companies have declined to comment on potential further increases ahead of next winter, analysts are predicting another rise as wholesale prices continue to go up. ‘Given the strength of forward prices for winter 2008/09, the industry will need additional price increases in September to maintain margins in the 5-7 pct range. Price increases of at least another 8 pct may be necessary,’ Citigroup analysts said in a note. Another driver for potential price rises is the subsidies for vulnerable customers, the analysts said. 

The government said it wants energy companies to spend 150 mln stg on social tariffs, up from 50 mln stg currently, and for prepayment meter bills to go down in line with direct debit bills. These measures are seen having an effect on bills for other less vulnerable customers. ‘Any subsidies would need to be recovered from the wider customer base,’ Citigroup said. The large energy suppliers are keen to talk to the government over possible subsidies, although none has given its opinion on the proposed 150 mln stg figure. If prices do rise again this year, more questions are likely to be asked about the state of the UK energy markets. Regulator Ofgem and a government business department committee are already investigating the energy market separately, reacting to concern about the lack of competition with only a small number of large suppliers, following the price rises this year.