The Retail Energy Provider

Retail energy suppliers (REPS) are a vital category of business to be well aware of in global energy markets. Alternately referred to as competing retail electrical service suppliers (cers), REPS offer a range of services to customers, including retail purchase of electricity from generating plants beyond what would normally be sold through a utility company’s grid. While some businesses may be small enough to be self-sufficient, most rely heavily on a main utility, which provides retail electricity to customers in their local area. While this level of localised electricity provision is a relatively new development in global electricity markets, it is becoming more common among bigger businesses – many of which are seen as risk factors by the largest investment banks in the sector due to their ability to withstand significant losses.

One of the reasons why larger retail energy providers can afford to offer competitive electricity rates to customers is because they have access to surplus electricity generated by utility companies operating deregulated energy markets – often through subsidiary companies or partnerships. Subsidiary companies such as British Gas are able to pass on these savings to customers by passing on their costs to customers in the form of cheaper electricity prices. In many cases, these savings are passed on to customers in the form of lower monthly utility bills. However, one of the most important drivers of the growth of these types of companies comes from the fact that they are able to generate electricity at a lower cost than many UK suppliers, thereby allowing them to offer competitive rates.

In recent years, four UK deregulated electricity providers have come into existence. Of these four, three are British Gas, Npower and EDF. These companies each currently hold about a million pounds worth of deregulated electricity contracts. The fourth company, Scottish Power, is in the process of being deregulated. This article will describe the main differences between these four utility companies and how customers are able to take advantage of these differences.

As described above, British Gas currently holds the majority of regulated retail energy supplier supply portion of the electricity market. This portion of the market is currently regulated through the UK consumer spending review body, the Financial Services Authority. Because of this oversight, British Gas has had to repeatedly update its funding arrangements in order to meet ongoing regulation and investment requirements.

Scottish Power is currently the only remaining independent electric utility in the UK. Its retail energy supply portion is not connected to the other three regulated utilities. Instead, Scottish Power decides which retail gas and electricity deals to offer based upon which ones it expects to have the highest transaction value. In recent years, the wholesale gas price that Scottish Power has received per unit of electricity has been consistently higher than the wholesale electricity price it charges its customers. In an effort to counteract this, Scottish Power has implemented several strategies, including raising the amount it pays to wholesale gas suppliers and reducing the amount it pays to wholesale electricity suppliers.

From a regulatory perspective, Scottish Power is not under investigation as a result of the current wholesale gas and electricity prices. However, the regulator, Ofgem, believes that there is room for improvement. Regulators frequently revisit wholesale gas and electricity prices in order to determine if they are being driven by competitive market forces. If the regulator feels that over time wholesale prices have become too high, it may recommend a rate review for Scottish Power. The regulator may warn Scottish Power that its operation in the UK energy markets are being unduly influenced by market forces. In this case, Scottish Power would be required to submit an application to Ofgem for an exception to one of its rates, usually on the basis that the operation of the business would be unduly affected by changes in regulation.

There are five main UK energy suppliers regulated by Ofgem. These are E.ON, Npower, Scottish Power, EDF and British Gas. Ofgem classifies these energy providers into four main categories: Listed Suppliers, Affiliates, Independent Contractors and Unlisted Suppliers. There are also several other subsets, including market operators and market development companies. An Affiliate is an independent supplier who sells energy to retailers but is not affiliated to any of the above companies. An Independent Contractor is an independent contractor who works on a project by contract but is not an Affiliate or Listed Supplier.

An Affiliate has the same relationship with Scottish Power as an Electricity Trading Customer has with Scottish Gas. Retail gas and retail electricity customers can choose either to become an Affiliate or a Listed Supplier. An Affiliate is not under any obligation to become an Electricity Trading Customer (OSC). An Affiliate is able to increase their sales by providing marketing and information services to potential customers and also by increasing the volume of sales generated by retail energy suppliers through their efforts to promote those suppliers.