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SSEs National Network Energy Charging

SSEAs part of SSEs response to the CMA investigation into the UK energy markets, the Big 6 energy supplier has proposed a controversial solution to the regional differences between energy prices.

A common misconception, peddled not least by the energy regulator Ofgem, is that the Big 6 energy suppliers who operate ‘in area’ in their traditional regional strongholds as well as out of area under the competitive deregulated national market, have long been accused of penalising their local customers at the expense of subsidising new sales in other areas.

To tackle this, and as part of their response SSE have argued that by implementing a single national charge for the transportation of electricity and gas from the generation plant or production facility to the customer a simpler pricing basis could be achieved.

The problem with this however is that the current arrangements necessitate those areas requiring a longer transportation journey and or with lower density populations to be charged proportionately more than those closer in or more densely populated. This arrangement has worked well to date but has led to unfair (and unfounded) pricing accusations by the regulator and affected customers.

Already to mitigate extreme swings in costs between regions customers are charged a Higher Distribution Charge Levy to subsidise the costs of transporting energy to remote areas.

It may be that SSE are calling Ofgem’s bluff, indeed they are at pains to make clear that they are not advocating the policy, rather they are simply proposing it as one potential solution to a perceived problem.

Ultimately however any application of uniform pricing will inevitably result in winners and losers.

Merseyside and North Wales would be the big winner, closely followed by South West England, With Scotland, wales and Southern England also benefitting.

However the East Midlands, with traditional generation plant and dense population that has historically meant a lower cost per head for traditional energy transportation will suddenly fare far worse.

SSE chief executive Alistair Phillips-Davies said:

“While there are pros and cons to any approach to pricing, if one of the goals of the CMA inquiry is to make it easier for customers to identify the best deal for them, replacing these regional charges with a national charge has to be a serious option. Instead of up to 14 different prices, each supplier would have one, whether the customer lives in Stirling, Sheffield or Swansea.

“It would reduce the number of steps household or small business customers need to take to find the best deal, make it easier for third parties to provide clear advice on the cheapest tariffs for different types of customer, and reduce some of the complexities involved in supplying energy, especially for smaller companies.”

However Phillips-Davies did recommend that if his proposal was to be accepted than it should be phased to “avoid too much price disturbance”.

Whilst appreciating the constructive nature of SSE’s proposal we cannot agree that this is a fair and balanced way forward for the industry. Building non-cost reflective pricing at a time when transparency and fairness are the watchwords of the day is clearly an erroneous path.

We hope this is a putative attempt by SSE to stop the unwarranted hyperbole around regional price variances however we fear that adoption of such a policy will result in significant pain for a huge swathe of the market, ultimately raising costs for all.

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