Battle of energy bills as British Gas cuts prices

AN energy price war could be brewing after British Gas slashed seven per cent off the average gas bill.

Consumer groups welcomed the reduction and urged householders to start shopping around for cheap deals – but criticised the firm for waiting until after the bitterly cold weather to pass on falls in wholesale prices.

British Gas said eight million households would save an average of 55 a year as a result of the move.

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The average annual dual fuel bill is now 1,123, compared with 1,310 in January 2009 – after hefty price hikes the year before – and 1,055 at the beginning of 2008.

Audrey Gallacher, of Consumer Focus, said the gas price reduction was a "rare piece of good news" as fears mount of an era of high prices.

"We welcome British Gas taking the lead and look to other energy companies to quickly follow," she said.

"People should use the British Gas cut as a trigger to check they're getting the best possible deal – thinking about switching, making sure they're on the right tariff and getting the right advice on energy efficiency.

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"But consumers could have seen prices fall earlier, as energy companies should have passed on wholesale price cuts before winter."

This week, a report from energy giant Scottish & Southern Energy revealed homes used less power this winter despite the coldest January for more than 20 years, as consumers tightened their belts.

Watchdog Ofgem also warned that prices could become increasingly unaffordable for many households and businesses as Britain struggles to bridge the gap between ageing infrastructure and new energy generation.

Yesterday British Gas managing director Phil Bentley said the firm recognised consumers' worries over the effect of the recent cold weather on bills.

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"I'm pleased we're able to offer our customers some extra help with this gas price cut – and that we're able to do this while it's still winter, allowing our customers to really feel the benefit," he added.

Analysts expect the cold snap to add around 20m to consensus forecasts for British Gas owner Centrica's residential profits for 2009, pushing them up to 560m from 379m the previous year.

But British Gas said that while the spot price had fallen to around the 40p a therm mark, most of the gas for this winter will have been bought in forward markets nearly two years ago at above 1 a therm.

A spokesman for British Gas said the recent drop in wholesale gas prices had enabled the firm to cut bills, although he said the market remains particularly volatile.

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The Government yesterday called on the rest of the industry to follow British Gas's lead.

Prime Minister Gordon Brown's spokesman said: "The Government welcomes this good news and would encourage other energy companies to reduce prices also."

This is the third reduction in energy prices from British Gas in 12 months and last year's cuts were followed by other suppliers.

But the firm has been criticised for not lowering its electricity tariffs.

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Which? chief executive, Peter Vicary-Smith, said: "Gas is a major source of electricity generation so surely a fall in the wholesale price of gas should also mean a reduction in electricity costs?

"This highlights the need for more transparency between wholesale and retail prices."

The gas price cut is an average across all regions and all paying methods, although those using pre-payment meters will have a slightly larger reduction as the firm ends the discrepancy in price with other bill payment methods.

British Gas was praised for its decision to stop the higher pre-pay prices but consumer groups said the move highlighted the industry's slow response to the issue.

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David Orr, chief executive of the National Housing Federation, said: "This is a great day for social justice and means that almost one million people, many of whom are on lower incomes, will now find it easier to pay for their energy and heat their homes. British Gas is to be commended for doing the right thing."