No one is looking forward to September 14, the date when the domestic electricity market opens up to all comers, more than British Gas Trading. And with good reason.
This is a chance to get even with the regional electricity companies, whereas until now it could only be mean. For the past two years, BGT, the domestic gas supply arm of Centrica, has been fuming impotently as the RECs, and others, trespassed on its hallowed gas monopoly. Already it has seen 30 per cent of its market evaporate.
As a matter of fact, E-Day represents rather more than an opportunity to even the score. If it handles its marketing adroitly, BGT will make a killing in the electricity market over the next few years.
After all, it possesses some formidable strategic advantages over the competition. To begin with, it is a national brand and a household name. None of the RECs, for all their regional loyalties, can make the same claim – although ScottishPower is certainly having a go at it.
Allied to this are the economies of scale which BGT can leverage, to its competitors’ detriment. In the utilities business, margins are meagre – typically 3 profit on the average electricity bill of about 300 a year. Which means that every penny saved on overheads is invaluable. BGT’s scale of operations is already being exploited to great effect – through the relative efficiency of its customer service centres, billing and database management. Let’s not forget the clout of its marketing budget, either. Nor the consumer convenience of dual-billing for gas and electricity, which is likely to disproportionately favour BGT. Already, 400,000 electricity customers across the UK have signed up in advance of deregulation, making BGT almost the size of a small REC before the starting pistol is fired.
Is there anything the RECs can do to stem the advance of this juggernaut? Not much in the short term. They may be able to play quite effectively on regional brand loyalties, but relentless pressure on their margins from the new competition will eventually take its toll. Consultants are predicting the RECs field will narrow from 12 to just five players within the next few years: ScottishPower, Eastern, Norweb, Northern Ireland Electricity and Southern Electric. What share of the electricity market will then be in BGT’s hands is anyone’s guess.
It might be thought that slick marketing from the RECs could eventually slow up, or even reverse, BGT’s inexorable advance. In fact, rather ironically, intervention by the new gas and electricity super regulator is the only thing that will sustain this particular ‘liberalised’ market.
Cover Story, page 26.