Threat of delay to Neta raises price hike fears

26 July 2000
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27 July 2000 | Liam O'Brien

Fears that the New Electricity Trading Arrangements (Neta) will not be introduced on time have raised concerns about higher electricity prices.

Buyers believe that any delay will reverse the recent trend of falling rates, which are as much as 20 per cent down on last year's. This is mainly because suppliers have been undercutting each other to win contracts.

Neta programme directors have so far been unable to guarantee that the new regime, which ties output to contracted consumer demand and requires contracts to be in place before power is generated, will be in operation by the planned start date of 21 November.

Last week, a spokesperson for the Neta programme would say only that its was on target to introduce the new regime within six weeks of 28 October.

A Competition Commission statement earlier this month said that the existing "pool" system - whereby generators can produce as much or as little as they want - may need to remain in place if Neta is not ready in time.

Complex industry-wide changes to IT systems are required by Neta and a balancing and settlement company, Elexon, is due to start work in August.

Chris Lewis, former chairman of the CIPS energy committee, said: "Some admit there is a 20 per cent chance that it will not happen. Suppliers could take a delay as a signal.

"With the pool in place, it will give them the opportunity to play games and push prices up."

"If Neta is postponed it will be an extremely bad thing because the pool rules can still be bent," said a senior buyer at chemicals giant ICI. "With winter approaching - traditionally meaning higher prices - there will be yet more opportunity for the industry to make hay while the sun shines."

Don McGarrigle, chairman of the Major Energy Users' Council - which represents the UK's 220 largest electricity users - admitted that the Neta timetable was "tight", but said that the council's members needed it implemented because "there was big money attached to it".

"Suppliers have deliberately secured volume ahead of Neta," he added. "If they don't need to do that for months, the industry will keep prices at the sort of level they have been in the pool - very much higher."

Some have claimed that energy suppliers might be tempted to drag their feet over Neta's introduction, given that it will herald increased competition and tighter profitability for them.

One industry insider told SM: "They could be grabbing at straws to keep the prices up. Neta will impact on the industry and some suppliers may even go bankrupt. The marketplace will becomes more risky for suppliers and generators and some may not wish to embrace the risk."

SMjul2000

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