British Gas price statement

Centrica plc today announced a change to its British Gas tariffs for domestic gas and electricity customers. The move is set against a backdrop of further cost increases in the wholesale energy market and a record £143 million loss by British Gas’ residential energy business in the first half-year of 2006. This follows a loss of £75 million in the second half of 2005.

Despite hopes that the energy market might stabilise, the continued high cost of energy has led British Gas to increase its residential gas prices by 12.4 per cent and electricity prices by 9.4 per cent with effect from 4 September 2006. Over the period between winter 2002/3 and this next winter the wholesale cost of gas has risen by 266%; it is up 71% in the last 12 months alone. The company, therefore, has no alternative but to increase prices.

Mark Clare, British Gas Managing Director, said: “This winter is crunch time for the wholesale cost of gas. As a result of the investments and commitments we have made we can see some light at the end of the tunnel but it’s still a winter away. During 2007/08 we should see new infrastructure coming on stream putting downward pressure on wholesale energy costs. We are now prepared to guarantee a fall in prices and ‘put our money where our mouth is’ with the introduction of our new Fix and Fall offer.”

However, he added: “As Britain becomes increasingly dependent on imports we are much more exposed to the factors that impact global gas prices. We also face a huge anxiety premium in the cost of this winter’s gas because of the impact of soaring oil prices and uncertainties over how much new gas will flow from Europe. Last winter’s experience has shown that new pipeline capacity does not guarantee the flow of gas.

“Despite being on target to take £200 million of costs out of British Gas’ residential energy business by the end of 2007, it’s a stark reflection of the market that our losses have doubled. Without a price rise these losses would deepen further. This is unsustainable. Were it to continue we would not be able to invest in the new supplies necessary to reverse this spiral of increasing wholesale costs. In the last 12 months alone we have invested £600 million in new energy assets on top of the £18 billion of commitments we have already made to bring new gas to the UK.”

Customers holding nearly 2.5 million fixed price products, around 15 per cent of British Gas’ customer base, are protected against this increase because of their decision to take Price Protection. Following the success of these products, British Gas is today launching Fix and Fall, the first product on the market that enables dual-fuel customers to fix their new energy prices for 12 months and then see a five per cent drop in prices at the end of 2007*.

Recognising the impact that increasing prices could have on its vulnerable customers, earlier in the year British Gas launched a scheme with 300,000 ‘Winter Rebate’ payments for the 2006/07 winter, totalling £90 for those with dual-fuel. Of these, 258,000 are already committed. The rebate is the biggest single social initiative from any British energy supplier and represents a key part of its £80 million spend over the next 12 months delivering help to those in fuel poverty. Recently, British Gas, along with its six major charity partners, passed the half million mark for the number of homes it is helping with fuel poverty measures.

British Gas has recently carried out an energy audit of 800,000 of its customers’ homes to help reduce their energy bills by up to a third. The Energy Savers Report is thought to be the biggest energy census of Britain’s homes, highlighting savings of around £184 per household for those who have responded. The results of the Energy Savers Report will be released later in the year.