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First Utility eyes IPO to fund expansion - CEO

By Karolin Schaps

LONDON (Reuters) - First Utility, Britain's largest independent electricity and gas supplier, is considering raising money through a public listing or outside investor to fund expansion abroad, its chief executive said in an interview.

The company, which started operating in 2008, has benefited in recent years from a public backlash against the rising tariffs charged by the so-called 'Big Six' utilities. Its customer accounts have risen by ten times over the past three years to reach 1 million on Monday.

The group is now looking to expansion opportunities in Germany, the Netherlands, Belgium and North America after having overtaken recently fellow minnow Utility Warehouse (TEP.L) to become the largest alternative provider.

"There are things we are interested in doing like taking our business model beyond the UK. Raising some capital to do that might be something we'll consider in future," Chief Executive Ian McCaig said in a telephone interview.

First Utility's plans are not yet finalised, but McCaig said it could follow in the footsteps of rival Ovo Energy, the third-biggest independent supplier, and seek a public listing, albeit to raise cash for different purposes.

Ovo Energy Chief Executive Stephen Fitzpatrick said last month his company planned to go public within 18 months to fund "new opportunities" and to give shares to its employees.

First Utility said it can offer lower tariffs in part because it has a multi-year agreement with oil major Shell (RDSa.L) to purchase electricity and gas on the wholesale market.

McCaig, who was chief executive of travel website lastminute.com until 2011, said this setup has saved the company money because it is not forced to cover its hedging strategy to purchase energy ahead of delivery.

Shell's global trading presence means the business model can easily be replicated in other markets, either by setting up new operations or making acquisitions, McCaig said.

"We are looking at markets where there's a deregulated environment coupled with a low level of price control intervention from the state," he said.

British utilities are free to set their own tariffs without government intervention. But the country's competition watchdog has started an investigation into possible anti-competitive behaviour by the largest suppliers that may have made it more difficult for new providers to access the market.


PRICE TURMOIL

McCaig said First Utility would always try to pass on savings to customers when wholesale energy prices fall but added that current turmoil in Ukraine was lifting gas prices.

"One of the challenges at the moment is (that the Ukraine crisis) is causing significant day-to-day spikes, so it's very difficult to see a stable platform to set a price at the moment," he said.

In Britain, First Utility competes with a string of smaller rivals and the big six: SSE (SSE.L), Scottish Power (IBE.MC), Centrica's (CNA.L) British Gas, EDF Energy (EDF.PA), RWE npower (RWEG.DE) and E.ON (EONGn.DE).

Britain's independent suppliers are slowly eating into the market share held by the six incumbents.

The latest data published by consultancy Cornwall Energy showed the large companies' hold on the market has fallen to 92 percent from 95 percent at the start of the year.

"With over 2 million customers now signed up to independent suppliers overall, it's clear that households increasingly trust them and are benefiting from competition in the market," Britain's Energy and Climate Change Secretary Edward Davey said in a statement.

Within the small suppliers' overall market share, First Utility holds 28 percent, closely followed by Utility Warehouse at 24 percent. Other providers include Good Energy (GOODG.L), Ovo Energy and Co-operative Energy.


(editing by Jane Baird)