British Gas statement on energy prices

Against a backdrop of unprecedented increases in the wholesale cost of energy, caused in part by anticompetitive practices in Europe, Centrica plc is today announcing a change to its British Gas tariffs for domestic gas and electricity customers.

Yesterday the European Commission and the UK regulator Ofgem confirmed that the lack of open access across continental energy markets was a key factor behind the shortfall in gas supplies coming into Britain and this was responsible for artificially inflating wholesale energy prices here. The Commission promised “intensive enforcement” and warned of legal action in a number of specific cases.

The cost of buying gas for 2006 is now 63% higher than in 2005 and some 202% higher than 2003(1). Wholesale gas prices in Britain are now the highest in Europe, yet consumers here still pay substantially less than in many European countries including Germany, France and Italy, where prices are also rising sharply (2).

As reported in Centrica’s trading statement in December, British Gas’s residential energy business made a loss in the second half of 2005 as a result of its decision to absorb a portion of the additional wholesale energy costs to reduce the impact on customers. Following the further substantial rises in wholesale energy costs British Gas has been forced to increase its gas and electricity domestic energy prices by 22% with effect from 1 March 2006. Even after these increases, British Gas continues to shoulder a portion of the burden of these higher wholesale costs.

Customers who have already signed up for Price Protection 2007 and 2010, some 2 million accounts, will not be affected by these price increases. Following the success of these offers, British Gas is today launching Price Protection 2009, enabling dual fuel customers to fix their energy prices until April 2009 at no extra cost (3).

Recognising the impact that these price rises could have on its vulnerable customers, British Gas will provide 300,000 “Winter Rebate” payments for the 2006/07 winter, totalling £90 for those with dual fuel (4). This follows the 208,000 payments that British Gas is making through its 2005/06 Winter Rebate scheme. This scheme is the biggest single social initiative from any British energy company and represents a key part of British Gas’s £80m annual spend delivering help to those in fuel poverty.

In addition, British Gas is launching Britain’s largest ever energy saving initiative. This ground-breaking programme will encourage millions of customers to undertake a free energy efficiency audit, providing them with tailored advice on how to reduce their energy consumption, as well as discounted measures to help insulate their homes. The company has also introduced an Energy Savers Club which will incentivise customers who take action with cash back on their bills.

Mark Clare, Managing Director, said: “The energy map is being redrawn with Britain now dependent on gas imports from Europe – a market the Commission says is “seriously malfunctioning”. Recent events in Russia have underlined how our energy markets are connected and this has served as a wake up call across Europe.

“While there can be no guarantees in such a volatile wholesale market, we see no need for any further price rises this year, assuming the infrastructure is ready to deliver new gas next winter and that proper action is taken following the Commission’s findings.

“We’re doing more than any other supplier to combat fuel poverty. Our aim is to ensure that every vulnerable British Gas customer asking for help receives some form of assistance next winter. This could include help and advice with paying their bills and energy efficiency measures to make their homes warmer.

“And we are committed to helping all of our customers save money by helping them save energy.”