Our own customer base was 5.23 million at the end of 2010, with little movement in customer numbers since the end of 2009.
According to Energy UK, the British electricity market remains very competitive, with 100,000 customers switching supplier each week. That equates to about five million customers a year, or roughly 20% of the market.
A review of the sector, conducted by the regulator Ofgem, concluded that customer switching levels in UK energy supply had been on a downward trend since 2006. However, in their Omnibus survey, Ofgem found that around 40% of energy consumers had switched supplier at least once.
Energy Market Prices
World energy markets continued to remain volatile during 2010. Prices in the early part of the year started lower, then rose during the summer months and continued this upward trend through to end of the year.
Our own standard retail tariffs followed the same pattern. We reduced retail gas tariffs in spring, but along with most of our competitors had to increase them again at the end of 2010.
Volatility in energy prices has continued in the early part of 2011 with adverse rainfall in coal exporting countries (Australia, Columbia and South Africa), political instability in the Middle East and North Africa, as well as the recent natural disaster in Japan creating upward pressure on energy prices.
Price Regulation
Ofgem protects customers’ interests by regulating transmission and distribution network operators through five-year price control periods which include curbs on expenditure, as well incentives for efficiency and technical innovation.
Energy transportation charges make up about one fifth of a household customer’s bill, so Ofgem aims to balance the companies’ need for adequate resources with protecting customers’ interests in relation to prices.
The price controls set the maximum amount of revenue that energy network owners can take through charges they levy on users of their networks to cover their costs and earn them a return in line with agreed expectations.
In April 2010 we entered a new distribution price control period (Distribution Price Control Review 5) which runs until 31st March 2015. This reduced our allowed rate of return, but provides financial incentives for good performance.
In October 2010, Ofgem published its decision into the future format of Price Controls, following a two-year review. The new regulatory framework is called the RIIO Model (Revenue using Incentives, to deliver Innovation and Outputs).
A key change is the move from a five-year price control to an eight-year cycle.
The RIIO Model is intended to build on the RPI-X regulatory framework, retaining some aspects, evolving others and adding new dimensions, where required.
One of the main recommendations is that an outputs-led approach to network regulation should be adopted. This means that regulated companies such as ours will need to define the service levels or outputs they expect to deliver to their customers. The prices they will be allowed to charge for the use of their networks will be based on delivering those service levels or outputs.
Ofgem will be setting output measures for safety, reliability, customer satisfaction and stakeholder engagement with strong incentives for efficient delivery. Emphasis will be placed on sustainability and innovation to encourage network companies to invest in new technologies that will benefit consumers and the environment.
For transmission, we are about to enter a “rollover” year to the existing review period and the new eight-year cycle under the RIIO model will come into effect in 2012/13.
Network operators will have submitted well justified business plans on how they intend to deliver investments and benefits by July 2011.
A key feature of both the distribution and transmission price reviews is that the business plans for investment have been developed following consultation with a broad range of stakeholders, to ensure network development proposals meet their needs.
Energy Efficiency and Help for Vulnerable Customers
We spend significant sums of money on helping customers to make their homes more energy efficient and reduce fuel bills under the Government’s mandatory Carbon Emissions Reduction Target (CERT) programme.
This involves reducing CO2 emissions from wasted energy by installing energy saving measures, such as loft and cavity wall insulation in customers’ homes and providing energy efficient light bulbs or appliances. During 2010 we spent around £44 million on customer energy efficiency programmes, helping customers to reduce the amount of energy they use in the long-term.
We also help vulnerable customers who suffer from fuel poverty through our charity, the ScottishPower Energy People Trust. The Trust awards grants to not-for-profit organisations that help people who are suffering from fuel poverty.
Programmes funded cover energy efficiency and income maximisation advice, as well as crisis funding. We spent around £16 million on fuel poverty initiatives during 2010, including through the ScottishPower Energy People Trust, social tariffs and community partnerships.
Our combined spend on energy efficiency and fuel poverty initiatives was around £60 million for 2010.
More information on the ScottishPower Energy People Trust appears in the Customer section of this report.
