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The European Bank of Reconstruction…

UK Gas Providers Slashing Prices

UK Gas Providers Slashing Prices

Half of Britain’s “big six” energy suppliers are now offering, or plan to offer, discounts of at least 5 percent to their retail customers amid a drop in the wholesale price of gas, but consumer advocates and even some government agencies say the rate cuts aren’t nearly enough.

E.ON cut retail gas prices by 5.1 percent effective Feb. 1, and SSE says its customers will pay 5.3 percent less effective March 29. On Tuesday, ScottishPower one-upped the competition by announcing it will cut retail gas rates by 5.4 percent beginning March 15.

ScottishPower said the discount will save its customers an average of about $45 per year. The cut will be available to about 1 million of its total 3.2 million customers, those who pay the standard gas rate. The rest, who pay a fixed, dual-fuel rate will not get the discount, it said.

The chief executive for ScottishPower’s retail operations, Neil Clitheroe, called the reduction evidence of Scottish Power’s effort to be competitive with its rivals. “Over the past year, we have tried to always offer our customers competitively priced dual-fuel [rates],” he said. “This has encouraged more of our customers to switch between tariffs, with now close to one in two on fixed-price products.”

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Consumer groups were not so optimistic. Stephen Murray of MoneySuperMarket dismissed ScottishPower’s price cut as being “hardly worth shouting about,” given that the wholesale price of gas has dropped by about one-third in the past 18 months.

“These price cuts are long overdue considering the sharp falls seen in wholesale gas prices over the last year, but they just don’t hit the mark,” Murray told The Telegraph. “It will still leave these customers paying on average nearly £300 [over $430] more than those who have shopped around and switched to one of the many fixed-price deals already available.”

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Ann Robinson, the director of policy at another consumer advocacy group, uSwitch.com, agreed. “This is yet another demonstration that the energy market is broken,” she said. “In a healthy, competitive market, drops in wholesale prices – which make up around half of bills – would be passed on. We should be seeing reductions of at least 10 percent on standard gas and electricity tariffs.”

Besides consumer groups, many political leaders and even the government’s Office of Gas and Electricity Markets, known as Ofgem, have recommended that utilities share their savings on the wholesale cost of gas with their customers. Even Conservative Prime Minister David Cameron has recommended steeper cuts in the retail price of gas.

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The United Kingdom’s energy market is even being investigated by the Competition and Markets Authority, which is expected to issue its findings sometime this spring. But there’s little doubt that the discounts being offered by E.ON and SSE will have an effect on competition among British utilities.

British Gas, EDF and Npower, the other three energy providers in Britain’s “big six,” are expected to feel the pressure of the discounts offered by their competitors and are viewed as likely to offer similar price cuts in the near future.

But will their cuts better reflect the drop in the wholesale price of gas? Probably not, according to Ofgem’s Rachel Fletcher, if ScottishPower’s discount is a reliable indicator. “This is a movement in the right direction for loyal customers,” she said, “but the size of today’s price cut is dwarfed by the savings available by switching from a standard tariff to a fixed deal.”

By Andy Tully of Oilprice.com

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