British Gas household tariff changes
Key facts about Centrica and British Gas
We recognise that energy bills are a real worry for hard-pressed households, particularly at a time when the cost of living is rising faster than incomes. It has been a difficult decision therefore to announce an average increase of 9.2% in household energy prices – 8.4% on gas and 10.4% on electricity – from 23 November 2013*.
More than 500,000 of our elderly and most in need customers will be protected by an automatic discount to offset the price increase throughout the winter - worth £60 per dual fuel household2. This is in addition to the £135 that will be paid to many of these customers who qualify for the Government's Warm Home Discount scheme. British Gas has set the widest criteria of all the major suppliers for this scheme, helping as many customers as possible.
Today’s announcement, which will add about £2 a week to the average dual fuel bill, reflects the increasing cost of: buying energy in global markets, delivering gas and electricity to the home, and the Government’s social and environmental programmes, which are paid for through customers’ bills.
We know that our customers will be concerned about today’s announcement and we will do our utmost to help people keep bills under control. Energy efficiency measures can help keep homes warmer using less energy. There is a wide range of help available, and we urge our customers to find out more at www.britishgas.co.uk/myenergy or by calling us on 0800 980 1917.
For customers who want peace of mind over a longer term, we are offering a new tariff, Fix & Fall November 2014, which guarantees that prices won’t go up until 30 November 2014, and if our standard prices fall, Fix & Fall prices will fall too. We also have a new Fixed Price March 2016 tariff, holding prices over three winters3.
Ian Peters, Managing Director of British Gas Residential Energy, said:
“I know these are difficult times for many customers and totally understand the frustration that so many household costs keep on rising when incomes aren’t keeping pace. We haven’t taken this decision lightly, but what’s pushing up energy prices at the moment are costs that are not all directly under our control, such as the global price of energy, charges that we have to pay for using the national grid that delivers energy to the home, and the cost of the Government’s social and environmental programmes.
“Energy efficiency is the best way to keep bills down, and I encourage anyone who has not benefited from them to go online and check if they are eligible. On average, insulation can save you around £200 a year.
“A price rise doesn’t necessarily mean energy bills have to go up too. The amount you pay depends not just on the price, but on how much gas and electricity you use. Energy efficiency is making a real difference. We’ve already provided three million customers with insulation, help and advice in managing their bills and keeping their homes warmer for less. Please visit www.britishgas.co.uk/myenergy or contact us on 0800 980 1917 if you’re worried and we’ll see what we can do – there’s a lot of help available.”
Rising costs
Today’s announcement reflects rising costs in three key areas:
- Network charges: British Gas has to pay to use the pipes and wires that deliver energy to Britain’s homes. These charges, set by the regulator, are increasing in order to pay for upgrading the networks and accommodate our changing energy infrastructure. This will account for an extra £20 on the average dual fuel bill next year, a 2% increase on the average annual dual fuel bill.
- Environmental and social obligations: British Gas is playing its part in a Government initiative, called the Energy Company Obligation (ECO), to transform homes and communities across the UK. However, we estimate that ECO will add £40 to the average dual fuel customer’s bill in 2014. Other environmental charges, including the cost of Renewables Obligation Certificates (ROCs) and the Feed in Tariffs (FITs) are also rising. We estimate these will add an additional £10 to the average customer’s dual fuel bill in 2014. Combined, these will increase the average bill by 4% next year.
- Wholesale energy: the price of energy in the global markets is volatile. Our cost of gas is 8% higher this year than last year. We have been able to absorb a proportion of these rising costs so far, owing to increased consumption during the extended cold weather last winter. But we have used up that benefit and have incurred losses for a number of months. We now need to reflect these ongoing higher costs, which will add around £37 to the average dual fuel bill next year, an increase of 3% on the average annual dual fuel bill.
Fair profits and investment
British Gas’ net profits from supplying energy to customers at home have averaged 5% after tax for the past six years, with customers’ actual energy bills rising not much more than inflation, owing to the benefits of energy efficiency. Margins across the Centrica Group, which include all our gas production and power generation activities, were 5.9% after tax in 2012.
We believe these are fair profits, funding investments in UK energy infrastructure and securing future energy supplies for the UK, keeping homes warm and keeping the lights on.
In the UK, we need to invest to close the energy gap – £110 billion is needed over the next decade to keep the lights on and to keep homes warm as older and more polluting power stations are closed.
We have agreements totalling £50 billion helping to secure gas and electricity for the UK. Only a profitable business can undertake these types of long-term commitments.
With our partners, we are developing the Cygnus field, the biggest gas discovery in the Southern North Sea for 25 years, providing enough gas, at peak production, to supply 1.5 million British homes, and in the construction phase creating 4,000 jobs. We have invested in the £1 billion Lincs offshore wind project, which will produce renewable energy for 200,000 homes. This year alone we will invest over £1 billion in North Sea gas fields and UK power generation.
In addition, our 2012 UK tax bill was nearly £800m, one of the highest in the FTSE 100, a vital contribution to reducing the national budget deficit and funding public services. We also directly employ 33,000 people here in Britain.
At British Gas and Centrica we are playing our part in full.
Simplifying tariffs for customers
British Gas is also announcing today a number of required changes to the way customers are charged for their energy, making our pricing clearer and ensuring we comply with the new rules from the regulator Ofgem, following its Retail Market Review:
- Standing charge: to make tariffs easier to understand, customers on all our tariffs in the market place will now pay a fixed standing charge of 26p (including VAT) per day, per fuel no matter which tariff they are on. This covers fixed costs, such as reading the meter and getting energy to the home. Consumers will also pay a single variable unit rate, based on the amount of energy consumed and the chosen tariff. Both the unit rate and the standing charge will be clearly shown in pence per unit on customers’ bills and annual statements. British Gas has already been offering tariffs with standing charges to new customers since June 2012 and will now move its remaining 6.1 million customers to this type of tariff.
- Direct debit discounts: as we continue to simplify our pricing structures we are consolidating our discount schemes. With the introduction of a single unit rate, customers will now receive a direct debit discount on all the fuel they use 4.
- Customers currently recieve a Prompt Pay discount for paying bills early. Ofgem has decided that energy companies are no longer allowed to offer this type of discount. We will have to withdraw this discount from 23 November 2013, although we will be adjusting our prices to help compensate for this change.
Call for changes to energy efficiency schemes
We support the overall aim of the Energy Company Obligation – to target help towards disadvantaged customers, improve the energy efficiency of homes, and cut carbon emissions. However, British Gas continues to urge the Government to reform the programme to make it more affordable for consumers. We expect to incur charges of more than £400 million on ECO this year, rising to almost double that amount next year. At current estimates, it is likely to cost British Gas £1.4 billion in total across the life of the scheme.
Carrying out the same energy efficiency measures over a longer time period would reduce the short-term impact on customers’ bills. In addition, including lower-cost measures such as loft and ‘easy to treat’ cavity wall insulation would enable us to help many more customers, and stimulate job creation in the insulation industry. If Government acts to cut the scheme's cost, the benefit would be passed on to customers.
Ian Peters, Managing Director of Residential Energy at British Gas, said:
“We have some of the least energy-efficient housing in Europe, with £1 in every £4 spent on gas heating being wasted. As a responsible business, we’re fully behind important Government initiatives to upgrade Britain’s homes and tackle climate change. But a review of the policies and how they are paid for is overdue.
“These policies currently affect all customers equally, whatever their circumstances, and therefore don’t take into account their ability to pay. We want to work with Government to make the schemes more cost-effective.”