British Gas turns up the Heat as ‘Senior Source’ Reveals Record Price Increases

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.British Gas senior sources confirm 25% price increases on their way(1) .Increases will add £1.23 billion(2) to gas bills for British Gas customers .Price rises will mean 43%(3) increase in the past 5 months .British Gas customers to pay an extra £209 per year as bills set to rise from £821(4) to £1030(5) .Energy giant will have raised gas prices by over 70% since start of 2004(6) .Average household energy bills for British Gas customers will have risen from £606(7) to £1030 since start of 2004 – a difference of £424

BRITISH GAS TURNS UP THE HEAT AS ‘SENIOR SOURCE’ REVEALS RECORD PRICE INCREASES

Senior sources at British Gas have today revealed that the company is set to announce the biggest gas and electricity price increases in British history. The massive 25% increase, which is 10 times the annual rate of inflation, will find 11 million British Gas customers paying a staggering £209 extra per year, taking the average household energy bill up to £1030. Despite already being on average 12.5%(8) more expensive for gas than its competitors, this figure is set to rise.

British Gas is blaming the rises on increases in the cost of wholesale gas – in spite of the fact that it buys the bulk of its gas on long-term contracts. This means that the company should have been insulated from the recent dramatic short-term movements in the wholesale gas market.

Ann Robinson, Director of Consumer Policy at leading switching and comparison service uSwitch.com comments: “We have been expecting an increase from British Gas, but frankly these figures are shocking. There is insufficient justification for such excessive price rises. We will be looking to Ofgem to step in and investigate the reasons for these increases, and verify that they are legitimate.

“This is a dramatic response to the recent volatility within the wholesale gas market, which is likely to subside in the near future. The fact is that British Gas will have increased its prices by 43% in the space of just five months, and is banking on customer apathy to keep its balance sheet looking healthy.

“Customers now need to vote with their feet and let British Gas know that this is one price rise too many. If enough people switch away this time it might make the company think twice before introducing increases of this magnitude in the future.”

The highest winter death toll in five years was reported in 2005(9), and there is a real fear that more people will die as they struggle to keep warm this winter. The poorest 6 million people in the UK are already on the verge of fuel poverty, spending 9% of their income on energy bills(10). Worryingly, this 25% price increase will add 422,000(11) households to the 3 million already living in fuel poverty in the UK(12). This makes meeting Government targets to eradicate fuel poverty by 2016 highly improbable.

Ann Robinson continues: “Too little too late is being done for these people. There are around 1.9 million vulnerable customers in the UK(13), 800,000 pensioners are already living below the poverty line(14), and we estimate that almost half a million households will be pushed into fuel poverty as a result of these rises. Those people who are paying over 10% of their income towards energy bills are now in serious danger, and need a record increase like a hole in the head.

“This issue is compounded by the large numbers of people who are either not entitled to, or not claiming the benefits available. 50% of people that are in fuel poverty do not qualify for the Winter Fuel Allowance(15), and only one in three pensioners claim the free benefits that they are entitled to. The percentage of a pensioner’s typical bill covered by the Winter Fuel Allowance will have fallen from 53% in 2003 to 31%(16) once these price rises come into effect. Energy suppliers, along with the Government, have a duty to provide better information and greater financial support to those that need it most.”

For more information visit uSwitch.com or call 0800 093 06 07

Notes to Editors:

1. 25% Biggest power bill rise ever to hit 11 million homes within weeks (Andrew Leach)

2. Number of British Gas residential gas customers stood at 11,362,000 as at 30 June 2005 (Source: Centrica interim report for the 6 months ending 30th June 2005). In Centrica’s Trading Statement dated 16th December 2005, British Gas announced that they expected to lose a net figure of 160,000 energy accounts. Assuming all 160,000 accounts lost were residential gas customers, this would leave the number of residential gas customers at 11,202,000 as at 31 December 2005. British Gas have 1,200,000 customers on their fixed product, who are excluded from price rises and hence from these calculations. Figure is worked out based on a medium usage gas customer (20,500 kWh) on British Gas’ standard tariff paying quarterly on receipt of bill. There are 1,900,000 prepayment customers in the UK, 53% of gas customers have ever switched and hence are still with British Gas, it is assumed that British Gas have 1,007,000 prepayment customers. The remaining customers are assumed to be split equally between paying on receipt of bill and paying by fixed monthly direct debit and a 25% increase is assumed. The increase per payment method (for a medium user, defined previously) is multiplied by the estimated numbers of customers (per payment method).

3. Based on a medium usage gas customer (20,500 kWh of gas per year) on British Gas standard plan, paying by cash or cheque on receipt of bill. Prices are averaged across all regions, since the start of September 2005.

4. Based on a medium usage customer (20,500 kWh for gas and 3,300 kWh for electricity) paying quarterly by cash or cheque, taking both gas and electricity from British Gas on 5th February 2006.

5. Based on a medium usage customer (20,500 kWh for gas and 3,300 kWh for electricity) paying quarterly by cash or cheque, taking both gas and electricity from British Gas, assuming a 25% increase.

6. Based on a medium usage gas customer (20,500 kWh of gas per year) on British Gas standard plan, paying by cash or cheque on receipt of bill. Prices are averaged across all regions, since the start of 2004.

7. Based on a medium usage customer (20,500 kWh for gas and 3,300 kWh for electricity) paying quarterly by cash or cheque, taking both gas and electricity from British Gas on 1st January 2004.

8. British Gas compared to standard products from the other ‘Big 5’ suppliers (EDF Energy, npower Powergen, Scottish & Southern Energy and ScottishPower) – this is based on a medium usage gas customer (20,500kWh of gas), paying quarterly by cash or cheque, taking standard tariff in each region, then taking the average across all regions. 12.5% figure is based on figures correct as of 5th February 2005, 40% figure assumes a 25% rise in British Gas prices.

9. Winter death mortality rates from ONS

10. Institute for Fiscal Studies

11. Because the average energy bill is made up of 60% gas bills and 40% electricity bills, a 25% rise in gas and electricity prices leads to the gas bill increase adding 15% more to an energy bill and 10% more to electricity bills. So for a £1000 energy bill a 25% increase would be £1250. Of this the gas increase would add £150 and the electricity £100. According to the DTI a 1% increase in energy bills puts 40,000 people into fuel poverty.

BG has a 55% market share of the gas market and a 23% share of the electricity market. So of a 40,000 increase in fuel poverty caused by gas bill rises 22,000 would be BG customers. Of a 40,000 increase in fuel poverty caused by electricity bill rises 9,200 would be BG customers. Therefore:

A 25% rise in gas bills adds 15% to a total energy bills.

15% X 40,000 equals 600,000.

55% of 600,000 equals 330,000

A 25% rise in electricity bills adds 10% to a total energy bill.

10% X 40,000 equals 400,000

23% of 400,000 equals 92,000

So 330,000 + 92,000 equals 422,000 households

12. National Energy Action charity (NEA)

13. See graph in "BRITISH GAS TURNS UP THE HEAT AS ‘SENIOR SOURCE’ REVEALS RECORD PRICE INCREASES" press release at:http://www.uswitch.com/Directory/Press-Room/Press-Room.aspx
14. Mail on Sunday, 5th February 2006 - 25% Biggest power bill rise ever to hit 11 million homes within weeks (Andrew Leach)

15. Source ‘Detailed Breakdowns of Fuel Poverty in England in 2003 Version 1, Jul 2005 published by the DTI

16. Winter Fuel Allowance is £200. Figures show Winter Fuel Allowance as a percentage of British Gas gas bills. 53% figure is calculated from 31st December 2003. 31% figure is calculated assuming 25% increase. Based on a medium usage gas customer (20,500 kWh of gas per year) on British Gas standard plan, paying by cash or cheque on receipt of bill.

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