August 25, 2004
Ashley Seager
The Guardian
British Gas yesterday hit customers with the biggest rise in gas and electricity bills since competition in the industry was launched, and the second big increase this year.
Blaming surging wholesale gas prices, the company said it was raising gas charges by 12.4% and electricity charges by 9.4% from September 20. That would mean an extra £47.50 a year on the average gas bill, and an extra £25.50 on electricity bills. The utility raised both prices by 6% in January, meaning gas prices are up nearly a fifth this year.
Energywatch, the independent watchdog for consumers, called the rises a "body blow".
But British Gas said it was forced to respond to higher wholesale gas prices, caused in part by surging oil prices.
"The UK energy industry has never faced such high wholesale gas prices - looking forward the price for 2005 is more than 50% up on 2003 prices," said British Gas's managing director, Mark Clare. "We have absorbed as much of these additional costs as we could, but unfortunately we now have to pass a proportion of them on to our customers."
Dwindling gas supplies from the North Sea have combined with rising oil prices to push up wholesale prices by almost 30% in the past year. Rising gas prices also push up electricity prices, because about 40% of the UK's electricity is generated in gas-fired power stations.
Mr Clare said: "The era of cheap UK energy is over, but we have confidence that the investments we are now making in future energy supplies will, in the long term, put downward pressure on commodity costs for the benefit of all our customers." He added that energy was still cheaper than at the launch of competition in 1996.
A spokesman said that gas prices were much lower in the UK than in France or Germany, thanks to competition.
Mr Clare also said British Gas would set up a £10m fund to help those with difficulty paying bills, and it was working with Help the Aged to cap bills for vulnerable elderly people.
The price rises will hit 13.4 million customers, of which 5 million take both gas and electricity from the company. Other suppliers, such as Powergen and EdF, which owns London Energy, Seeboard Energy, SWEB Energy and Virgin, have already announced rises, though they were in the 3-4% range.
Energywatch's chief, Allan Asher, said: "Overall this is seriously bad news for millions of consumers. It is no surprise that British Gas have responded to the rising wholesale cost of gas. But it is by no means clear why the wholesale price is so high.
"[We] will be calling for an investigation into the wholesale market."
He was echoed by Jeremy Nicholson, spokesman for the Energy Intensive Users' Group, a body representing big indus trial energy consumers already been hit by hefty increases.
"The rise in oil prices can only account for about half of the wholesale gas price rise," he said. "Demand is lower than last year, but prices are much higher. We have called for an investigation into the market because this will have huge consequences for industry."
Tim Wolfenden, product manager at U-switch.com, an online energy price comparison and switching service, said British Gas may have overestimated customer loyalty: "Faced with the second significant price rise in less than a year, customers are likely to vote with their feet."
TheEnergyShop.com, its rival, said the move by British Gas would cost its gas customers an extra £550m a year in total and electricity customers an extra £150m.
Since the trough in prices in June 2000, it said, British Gas customers were paying on aggregate £1.3bn more a year, including yesterday's increase.
http://money.guardian.co.uk/news_/story/0,1456,1290204,00.html