Posted on Tuesday 21 December 2010 byUlster Business
Phoenix’s retail arm has been rapidly growing its market share in the Republic and Managing Director David Strahan says it would welcome a similar level playing field right throughout Northern Ireland
While newspapers on both sides of the border have been full of despairing headlines regarding the economy, some Northern Ireland companies are continuing to thrive in the Republic.
One such firm is natural gas provider Phoenix Supply, which less than two years after entering the Southern gas market has already exceeded its market share targets.
“Our business in the south, unlike many start-up businesses, is making money in its first year of business. That shows that not only can competition drive down costs that people already think can’t be any lower, it can deliver a benefit to the customer and can create employment,” Managing Director David Strahan told Ulster Business.
While the Irish market had been open to competition for a decade and had numerous suppliers, Belfast-based Phoenix Supply was warned that the biggest energy users in Ireland wouldn’t switch to them as they wouldn’t be able to compete with the incumbent on price or service. However, Strahan says that by listening to what these customers wanted, it gained 25% of the top tier industrial customers within two months of entering the market and is now targeting 50% of the top tier and 30% of the rest of the market.
“The potential for growth in the South is huge. The number of customers connected to the Greater Belfast gas network is about 140,000. In the South there is about 600,000 with a lot of big energy users.
“So the pool to fish in is a lot bigger and that is where we would see the principle area of our growth coming from,” says Strahan.
There is steady growth in Northern Ireland too, with around 8,000 customers a year still connecting to natural gas – on average 220 customers a week.
Last month competitor firmus announced it will start supplying domestic customers in Phoenix’s key home market of Greater Belfast, and that it would beat their price for at least two years for customers who choose to switch.
Strahan says that far from being concerned about this break of its perceived long held monopoly, Phoenix actually welcomes the move.
“I think it is great that we have competition. It is what the industry has been working towards for a number of years. It is no new thing that we have competition – it has been there in the business sector since 2006,” he says.
“What we are really trying to do is build a gas industry. We can’t be narrow minded about protecting our own patch. It is good from our perspective that there are four or five companies now because it allows us to be compared with them. When you are the only one there is no benchmark.”
He says firmus’ introductory offer undercutting Phoenix Supply’s own tariffs is to be expected from any company entering a market and looking to gain market share quickly, and that only time will tell if it is sustainable.
But with firmus having entered the Greater Belfast market he is hopeful that the market in which firmus has exclusivity – ten of the province’s other largest towns – will also be opened to competition.
“Firmus in the 10 towns are able to supply exclusively there, we aren’t allowed to compete in their area whereas in Greater Belfast they can supply. That is something we’d like to see resolved because only then will you be able to fairly compare the two companies - when there is a level playing field across the province,” says Strahan.
“Greater Belfast has been open for some time, it is only that recently a company decided to come in and compete with us in the domestic sector. The issue in the ten towns is that it is not open and that is a regulatory issue. It was due to open in April next year, and though no decision has been made to postpone it, we are gravely concerned that the regulator is considering delaying the introduction of competition in those ten towns.”
While this might smack of the incumbent trying to defend his turf against the smaller upstart, Strahan believes the company’s experience in the Republic shows that having companies competing aggressively across Northern Ireland would lower energy costs and save customers money. He thinks this in turn could help save jobs, given that energy bills are typically the second highest cost a business has after staff.
“In the South it is saving millions of euros and that is why we want to see competition in the 10 towns, because it will drive down costs,” explains Strahan. “It is unfortunate there is a consultation about trying to postpone the introduction of competition with no clear rationale for postponing it. One of the main planks of the consultation process is that it will be confusing for customers. These are complex businesses – are they really going to be confused about choosing an energy supplier?”
Strahan notes that there are over 130,000 potential customers in Northern Ireland who have not yet been connected to the gas network and believes more would make the move if they knew there was competition between gas suppliers in the same way there is with oil suppliers.
Prices remain a major issue and while Phoenix Supply’s own analysts say that gas is currently 30% cheaper than home heating oil, Scottish and Southern (+9.4%) and BG Group (+7%) in Great Britain have both recently hiked prices, blaming a rise in wholesale costs. While summer prices are normally lower than winter the average wholesale gas price for summer was 41p compared with 31p last winter.
In September Phoenix Supply said its forward purchasing strategy would allow it to hold gas prices flat through the winter.
“There is a tendency in the GB market for companies to follow one another,” notes Strahan. “The difference with our price is that it is regulated. We have the regulator scrutinising our books and there is certainly no need for us to put our prices up this winter. Where things go next year and the winter after remains to be seen.”
He adds: “Our price is around 10% lower than GB and around 13% lower than in the South. One reason is the fact that our margins are capped at 1.5% - GB is anywhere from 5% up. A lot of it will also depend on hedging strategy. What has enabled us to announce no change is that we have bought a lot of our gas for winter already.”
Strahan points out that as well as taking expert advice from traders in London, Phoenix also has its own purchasing team that are tracking wholesale market prices and buying and selling their own gas – trading about 120 million therms of gas. This allows them to give its biggest customers direct access to the wholesale market to let them choose when they want to buy their gas, rather than just giving them a fixed price for a fixed term.
“If you are not doing that activity yourself it is very difficult to know what’s happening and what’s driving the price. Some of the companies in Northern Ireland don’t do that. I wouldn’t want to hand over responsibility from our business to another business, because how then can we provide advice on something we’re not living and breathing ourselves,” says the Phoenix Supply boss.
“The wholesale market is so fast-moving, you really do need to live and breathe it, and that’s what we do here.”