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The largest supplier of energy to British consumers has decided to reduce the retail price of gas by 5 percent, sharing with them a fraction of the money they save on the wholesale gas market.
British Gas’ announcement on Jan. 19 follows last week’s decision by a competing gas provider, E.ON, which cut prices to its customers by 3.5 percent. Both these actions are expected to bring pressure on the four other major suppliers in the United Kingdom, EDF Energy, RWE npower, ScottishPower and SSE.
“It is likely that some or all of the remaining Big Six suppliers will look to offer some price cuts of their own,” utilities analyst Angelos Anastasiou of the investment banking firm Whitman Howard told Reuters.
Centrica Plc, which owns British Gas, has enjoyed a “30 percent drop in wholesale gas prices over the last 12 months,” according to Deutsche Bank AG. In the longer term, however, the bank cautioned that Centrica’s earnings may erode as a result of weaker commodity prices.
British Gas said the price reduction, effective from Feb. 27, will save 37 pounds or a little over $56 on an average annual gas bill. But the timing of the cut is controversial. Stephen Murray, of the price comparison website MoneySuperMarket.com, said it appears that the discount may be coming a bit late.
“British Gas customers will have to wait a whole month before they see any reduction in their bills at a time when energy use is at its peak,” he told The Express.
The utility responded to this and similar criticisms by saying most of the gas now being delivered to its customers had been bought at higher prices during 2013 and 2014, when gas prices were higher. Only since the New Year has price dropped low enough to warrant a discount. And it said it would monitor wholesale prices closely to decide “further movements up or down” for what it charges its customers.
The price of gas has become something of a political issue in Britain, which faces a general election on May 7. Labor, the opposition, has been promising a 20-month freeze on bills for all utilities – electricity, heating oil as well as gas – if it achieves a majority in Parliament. Conservative Prime Minister David Cameron has been urging utilities instead to share its lower costs with their customers.
It was no surprise that Cameron welcomed British Gas’ decision. “This is excellent news, and we should be absolutely clear that this price cut would not be happening if we’d listened to Labor and put in place their 20-month price freeze,” Cameron told ITV. “If we’d frozen prices, you would not have got this benefit to hard-working families up and down the country.”
The leader of the Labor Party, Ed Miliband, countered that the utilities’ wholesale prices had dropped by fully 20 percent, and that that savings should have been passed on to their customers. And, like Murray, he said the discount should begin immediately. “A 5 percent fall is too little and it is too late,” he said. “It is not nearly good enough.”
By Andy Tully of Oilprice.com
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Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com