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Big 6 Suffer as Competition Bites

It hbig 6 energyasn’t been a great time to be an energy supplier of late.

With the media and popular press lining up to barrack at every opportunity, some misguided and defensive commentary (step forward Sam Laidlaw) and a general perception of profiteering the industry has had an annus horriblis indeed.

The travails of 2014 however do not looked short-lived, with the Competition and Markets Authority investigation into the energy market, and by extension the Big 6 energy suppliers, and a conclusion expected that is anything but effusive in its praise for the current status quo, the boardrooms of the Big 6 have been shaken like never before.

Even the scandal involving the ‘Big 5’ price comparison websites allegedly ‘hiding’ energy deals has failed to stem the flow of criticism.

And now we know that that stream of anger is having a fundamental impact on the performances of the businesses in question.

Seen by many as the strongest of the Big 6 and the most customer centric, SSE is suffering along with its peers.

As far as share falls go it’s not the worst but life in the boardroom of the Big 6 is never anything less than challenging these days with SSE the latest energy supplier to announce a tale of woe for the recent and coming financial period.

SSE, Britain’s second-biggest household supplier announced half-year pre-tax profits that had fallen 6.2% to £316.6m in H1 2014, down from £337.4m a year earlier blaming competition in the energy market, an unusually warm summer and weak gas prices.

The impact of competition saw SSE lose 210,000 customer accounts even though they consistently come out at the top of the Big 6 customer service rankings by some distance. Indeed over the last 12 months the SSE portfolio shrank by 5%, falling from 9.4m to 8.9m customer accounts.

Allied to this H1 2014 temperatures were 1.3°C warmer than historical averages whilst warmer temperatures have continued through Autumn and a mild winter is forecast for the UK. As a result increased usage of energy, even by fewer customers, looks unlikely to change the fortunes of the retail business any time soon.

An SSE spokesman explained:

“The business environment remains challenging and, in particular, the mild weather that has contributed to low production and consumption of energy has persisted into early November”

Happily however for SSE, its pipes and wires business, balanced out the losses in the retail division and enabled the business to post profits.

Announcing the results Alistair Phillips-Davies, SSE’s chief executive, said:

“In tough market conditions we have delivered solid business results.”

The same could not be said for E.ON and RWE however.

Both businesses are German owned and under critical pressures in their home country.

E.ON posted a 25% reduction in profits whilst RWE reported a 31% drop.

E.ON suffered as Germany continued its move to abandon nuclear power and implement the transition of the economy to a dependence on electricity generated from clean sources. Subsidies and favourable access to the power grid have simply exacerbated the effect.

Similarly RWEs earnings were hit by a resultant glut of electricity from clean sources that has had the effect of artificially reducing the wholesale price whilst the market for non-clean generated power has been effectively marginalised.

With nPower regularly placing bottom in customer satisfaction tables and only recently extricating itself from a threat from Ofgem, the energy regulator, to ban it from acquiring new customers until its problems were fixed, it remains the Big 6 energy supplier most at risk.

The situation at E.ON however, once seen as solid, is equally under pressure, this time however from the external measures taken by Angela Merkel’s administration.

In contrast to the plight of the German behemoths, SSEs dip looks a little breeze during a walk in the park compared to a deadly tornado.