Energy suppliers in price war

By ROBERT LEA
Updated: 04:54 EDT, 14 February 2007

An energy price war is set to come to the boil in the next few days with British Gas's big cuts in household bills announced last week likely to be trumped by rival suppliers.

The Evening Standard has learned that Britain's five other big gas and electricity suppliers were shocked by the depth of British Gas's price cuts - which are set to come into effect next month - and are likely to react aggressively.

The move, a 17% fall in gas and an 11% slice off electricity - took British Gas from the country's most expensive utility supplier to its cheapest in one bold leap.

British Gas's price cuts were seen as a desperate bid to stem the haemorrhaging of customers that has seen the one-timemonopoly household gas supplier's consumer base dwindle to less than half the country'shouseholds.

It is believed that when British Gas parent Centrica reports full-year figures next week, the business will admit its household gas customer base will represent as little as 48% of the market against 70% at the start of the decade.

British Gas, which had already said it would cut prices in the spring, said last week that its tariffs will change from 12 March.

One executive at a rival supplier said: 'The ballpark has changed. We neither expected British Gas to cut so drastically nor so rapidly. You can expect that other suppliers will cut, and that some of those cuts will take effect before 12 March to steal British Gas's thunder.'

The most aggressive cutter is likely to be Scottish and Southern Energy, which has set out its stall to have the unique selling proposition of being the cheapest in the market, and as a result won hundreds of thousands of customers. It upped prices on 1 January, after rising costs in the summer hurt its bottom line, but has already committed to cutting soon.

The other four suppliers are also likely to cut, especially as on some tariffs they will now be over £100 a year more expensive than British Gas.

However, insiders are warning they may find it more difficult to react quickly as they are all foreign- owned - Powergen and npower by Germany's E.On and RWE respectively, and Scottish Power by Iberdrola of Spain while EDF is the UK arm of Electricité de France - and have to retain sizeable-profit margins for their international owners.

How This is Money can help
Consumers who would like to switch suppliers and cut their bills will not get a clear comparison for several weeks. Use our archive of stories in household bills and our free newsflash service to find out when companies make cuts. Then try our comparison service at www.thisismoney.co.uk/fuelbills

Consumer groups believe a price war is on the way. Adam Scorer of energywatch said: 'British Gas has raised its energy prices by 91% on gas and 81% on electricity over the last four years. That means there's still a long way to go before the damage done to consumers by rocketing prices is undone.

'British Gas's move must be the first strike in a battle by all energy companies to lower prices and fight to attract new customers.'

Paul Green of energyhelpline said with wholesale gas prices having fallen by 50% in the past six months, British Gas has by no means passed on the full extent of the price dive.

'In the next couple of weeks, we expect all the other major suppliers to announce price cuts,' he said.