UK overpaying £1bn for power

22 June 2005
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23 June 2005 | Liam O'Brien

British companies are paying £1 billion too much for their energy because of poor buying decisions, according to a new report.

The research, published by energy risk management company Utilyx and investment bank Barclays Capital, shows that 74 per cent of industrial and commercial users finalised their most recent electricity and gas supplies in the three months prior to contracts coming into effect.

The research found that if they had secured their deals earlier, British companies could collectively have saved £1.06 billion.

Chris Bowden, chief executive of Utilyx, said: "Energy prices have risen by 30 per cent since the beginning of the year and are still rising, but many buyers have waited until the last moment to buy. "Instead of assessing the risks of a rising market and getting their prices secured earlier when the price was lower, they have waited until the worst time."

The report found 55 per cent of the 98 buyers questioned had little idea of how to minimise their companies' exposure to energy price hikes by using "floating" contracts where prices follow monthly indices.

"You have companies that employ best-practice risk management for their exposure to foreign exchange and interest rate fluctuations, but have no idea about how to manage their energy risks.

"The staggering thing is that some of these companies have multimillion pound energy budgets," added Bowden.

Ian Dobson, chair of the CIPS energy committee, agreed with the report's key findings and questioned whether some energy buyers were trained properly.

"Part of the problem is that utilities can be tagged onto other buying jobs. So you get a buyer who is used to buying raw materials and equipment and is asked to buy energy as an afterthought.

"In these circumstances, they tend not to be too sophisticated in their buying," he said.


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