27 April 2006 | Helen Gilbert
The Office of Government Commerce (OGC) is applying for licences to ship and supply gas to the public sector in a bid to cut soaring bills.
The OGC is the first government body to apply to Ofgem, the energy regulator, for licences to both import and sell gas directly from manufacturers. The OGC told SM
it made the application in March, in direct response to rising prices.
Department of Trade and Industry figures show that the public sector used 45,825 gigawatt hours (gwh) of energy in 2004 - one gwh equals one million kilowatt hours.
The OGC does not know how much the public sector currently spends on gas. It also told SM
it is too early to say how much gas will be shipped to the UK or how much it will cost.
But an OGC spokesman added that buying wholesale would "always be cheaper" and hopes to pass the cost savings down to the public sector. Ofgem will decide whether to grant the licences over the next six weeks.
The OGC spokesman said the licences would enable the "practicalities of a future pan-government contract (PGC) to be explored to enable the public sector to buy energy supplies on better terms".
He added: "By acting in unison, a future PGC could be used to harness the government's potential negotiating position with the energy supplier."
The initiative is consistent with the OGC's aim to ensure that public-sector buyers get the best deals, he added.
"Government departments, schools and hospitals need gas to heat buildings. If we could knock 15 per cent off what we spend we could get efficiency gains with a capital E."
Eddie Proffitt, gas group chairman of the Major Energy Users Council, welcomed more shippers and suppliers, but only in the spirit of "true competition". He feared the government "if acting as the OGC's bankers", would gain an unfair advantage over companies not supported by the state, which run the risk of "going bust".
Rod Sinden, co-founder of the Local Authority and Government Utilities Resource, which represents the public sector in the energy market, said the OGC's aim was "admirable" but warned there could be competitive or political issues, or even legal challenges from the supply sector.
"Not to mention all the practical and risk issues of implementing such a bold move from within the public sector," he added.
However, the OGC said reduced costs and greater transparency to the supply chain would result in a better understanding of how gas is supplied and deliver savings against the prices currently being paid by the public sector.
The Institute of Public Policy Research this month called on government to buy bulk gas and electricity on behalf of pensioners and benefit recipients. The IPPR estimates this would save around £60 per person per year.