British Gas cuts electricity prices by 10%

Energy bills are set to fall for most consumers after British Gas, the country’s biggest retail supplier, cut its electricity prices by an average of 10 per cent.

British Gas tends to set the lead for price changes, and its move is expected to be followed by other suppliers.

Wholesale gas and electricity prices have fallen sharply since last summer, restoring margins for suppliers which had been operating at very low rates of profitability or even making losses.

Consumer groups argued on Thursday that retail prices were still much higher than when wholesale prices were at similar levels in the winter of 2007-08. Energy bills rose by an average of 42 per cent last year in two rounds of price rises, according to Uswitch, the price comparison website.

British Gas said 4.5m customers would benefit from the electricity price cut, with immediate effect. The reduction varies from region to region, depending on competitors’ prices, but averages 10 per cent. It is now on average the cheapest electricity supplier.

The average dual fuel bill for a British Gas customer is £1,127 ($1,687) per year, down £132 from the beginning of the year.

All the other “big six” energy suppliers such as EDF, Eon and RWE Npower have already cut their electricity prices this year. British Gas had cut gas prices by 10 per cent, which took effect in February.

Nevertheless, industry executives expect the other suppliers to follow the British Gas move soon.

Phil Bentley, managing director of British Gas, said the company was pleased to be able to “continue to help our customers during this economic downturn”.

Excess supplies in world markets and the slump in the price of oil have driven down the cost of gas, and hence of electricity which is generally set by the gas price.

The wholesale price of electricity for the coming winter has fallen to about £45 per megawatt hour, down from an average of more than £77 per megawatt hour during the past winter.

Gas has also fallen, to 49p a therm for the coming winter from an average of 63p a therm in the past winter.

National Energy Action, a charity that campaigns on fuel poverty, said the average combined gas and electricity bill was still more than £300 a year higher now than at the start of 2008. It said: “While the price cuts are welcome, they come in a context of ever-rising prices.”

Suppliers say prices in the wholesale market do not necessarily give a fair reflection on their costs, which are affected by forward purchases of gas and electricity to hedge price risks.