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British Gas cuts domestic energy prices

By  Jonathan Cable

By Jonathan Cable

London (Reuters): British Gas, Britain's biggest domestic energy supplier, lowered its residential electricity and gas prices on Thursday.

BG's parent, utility Centrica (CNA.L), said BG was cutting electricity prices by 6% and gas prices by 3%. Coupled with cuts earlier this year this would reduce the average annual dual fuel bill by £207, it said.

Rivals Npower, owned by Germany's RWE AG (RWE), Powergen, owned by E.ON (EON) and Scottish & Southern Energy (SSE.L) have also announced plans to cut their standard tariffs.

However, not all suppliers have cut prices.

"The predicted price war has yet to happen in full as EDF Energy and Scottish Power have still to cut their prices. We expect today's news to put pressure on these suppliers to act," Karen Darby, founder of Website SimplySwitch.com said.

"Last week British Gas was criticised for its customer service record, so the energy company acted in the swiftest way it could - by cutting prices," Darby said.

UK energy regulator Ofgem said on Monday the average household could slash its annual energy bill by over £100 by abandoning Scottish Power or EDF Energy , which have not reduced their standard charges.

Spanish company Iberdrola (IBE.L) completed its takeover of Scottish Power this week, creating Europe's third biggest utility.

"Our new chief executive, Jose Luis del Valle, has already started to review all parts of the business and customers can expect good news soon," a Scottish Power spokesman said.

EDF said its prices were continually under review. British Gas has around 10 million gas customers and almost 6 million electricity accounts.

Inflation

The reduction in gas and electricity bills is likely to help moderate inflation over the next few months, economists say.

High energy prices are the main reason why inflation has been so high over the last year, with consumer price-growth spiking to a record high of 3.1% in March, according to the Bank of England's Monetary Policy Committee..

Policymakers are counting on falling household energy bills to help bring inflation back to the central bank's 2.0 % target and reduce the need for further interest rate rises.

"This comes too soon to enter the CPI in April so should beef up the drag on the CPI from utilities from May onwards," said Alan Clarke, an economist at BNP Paribas.

Clarke said this latest price cut would shave about 0.04 percentage points off inflation between May and August.

Prices falling

Power and gas prices soared in 2005 and early last year as tighter gas supplies and rising oil prices spooked the markets, pushing up customer energy costs.

However, wholesale prices have fallen since new gas import pipelines from Norway and the Netherlands opened in the latter half of 2006.

The seven-month decline shows no sign of ending in the short term because summer always sees a decline in demand for heating, although some traders do not think prices can go much lower.

After the warmest winter on record according to the Met Office records, Britain's gas storage sites are fuller than they would normally be at this time of year.

Next winter should see more gas coming to the UK from Norway as another field, Ormen Lange, starts production and new liquefied natural gas import facilities open.

Shares in Centrica were up 0.1 % at 384-1/2 pence by 12:15 p.m. (British Time), valuing the group at around £14.2 billion.

(Additional reporting by Matt Falloon, Jennifer Hill and Daniel Fineren)


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