British Gas Residential Energy Price Changes
Centrica PLC
CENTRICA STATEMENT
9 September 2005
Centrica plc, confirms that its wholly owned subsidiary, British Gas, has today
issued a statement regarding energy prices, a copy of which is attached.
British Gas's pricing policy is to fully recover the wholesale costs of energy
from its customers, respecting both the level and volatility in the forward
curve and the competitive dynamics of the market. On this occasion, it has
chosen to extend the time over which it will recover wholesale costs and as a
result, British Gas profits in the second half will be significantly reduced.
There is considerable risk and volatility in the wholesale energy markets in the
fourth quarter, and Centrica believes, based on its latest forecasts for
wholesale prices, that Group earnings for 2005 will be towards the lower end of
market expectations.
Ends
Attached: British Gas Statement on Energy Prices
Contact:
Investor Relations on 01753 494900
Media Relations on 01753 494104/01753 494105 /01753 494088
BRITISH GAS STATEMENT ON ENERGY PRICES
British Gas, today announced it is to increase domestic energy prices. This
follows recent moves by Powergen (E.ON) and EDF Energy.
The 14.2 per cent increase in gas and electricity prices takes effect from 19
September 2005 and comes on the back of record highs in the cost of wholesale
gas driven by soaring oil prices and declining North Sea gas reserves.
An independent report from Global Insight 1 this week found each $10 per barrel
increase in the price of crude oil gives rise to a 7 p per therm increase in
wholesale gas prices - or an extra £50 a year2 on the average domestic gas bill.
Global Insight found that the oil-gas linkage resulted from non-liberalised
markets in Europe and could cost the UK an additional £10 billion in 2006.
The current forward price of gas for the second half of 2005 is 50 per cent
above the same period in 2004 and 31 per cent above the market price for the
first half of 2005. For electricity, it is 61 per cent and 43 per cent higher
respectively.3 British Gas is not fully passing through these higher commodity
costs in this price increase as it continues to try to mitigate the impact on
customers, including an intense focus on driving down operating costs.
Amid concern about the impact of rising energy costs on the fuel poor, British
Gas will be offering support to a quarter of a million of its most vulnerable
customers through a rebate4 of up to £60. For the average customer, this will
offset the impact of the price increase this winter. This is the biggest single
social initiative carried out by any UK energy company. It comes on top of the
existing £10 million British Gas Energy Trust Fund which is helping customers in
debt who need financial assistance to pay their bills.
The one million customers who signed up to British Gas' Price Protection, which
caps energy prices until 2007, will not be affected by the price increase until
April 2007. British Gas is now launching a further fixed price product, enabling
dual fuel customers to fix their energy prices until 2010 at no extra cost5.
Mark Clare, Managing Director, British Gas, said: 'We are no longer an energy
island - spiralling world oil prices are now having an unprecedented impact on
the cost of gas as the UK is now dependent on imports. In these difficult times
it is more important than ever that our customers take action to save energy and
so reduce their bills. British Gas already invests £130m a year in energy
efficiency measures for customers and we will now offer additional incentives
for those that are prepared to take action. We are also offering a winter rebate
to offset the cost of this increase to our most vulnerable customers who would
otherwise be hit hardest.'
Looking forward, British Gas warned that European Union member states must
urgently open their markets if UK consumers were not to suffer even higher
prices. Most major gas pipelines and storage facilities on the Continent are
owned by monopolies or near monopolies and are in practice inaccessible to UK
suppliers wishing to transport gas across Europe.
Notes to editors
Price increases are actual not averages and apply to all customers on all
payment methods.
1 Global Insight report - The UK gas market - impacts of interactions with the
wider European gas market. Global Insight stated: 'The study reveals how limited
liberalisation in Continental gas markets could cost the UK Gas end-user as much
as £10 billion in 2006 (around half of the total value of the gas supply bill).
These costs predominantly arise because the lack of liberalisation has meant
that the pricing of gas on an oil-indexed basis across Europe has been
maintained, isolating the level of European gas prices from underlying supply
and demand dynamics. The study notes how a 10 $/barrel increase in the cost of
oil can increase the costs of European gas by around 7 pence / therm.' Contact
Global Insight Media Relations on 020 7452 5183 for a copy of the report.
2 £50 based on annual consumption of 20,500 kWh, and 7p/therm = 0.2388 p/kWh,
giving £48.95 increase (1 therm = 29.3071 kWh).
3 On 5th September 2005 the average forward price for gas for the second half of
the year was 50 per cent above the same period in 2004 (41.27p/therm compared
with 27.56 p/therm) and 31pc above the market price for the first half of 2005
(41.27p/therm compared with 31.44 p/therm. For electricity it was 61pc (i.e.
£40.98/ Mwh compared with £25.53 /Mwh) and 43pc (i.e. £40.98/Mwh compared with
£28.68 /Mwh) respectively. Source: gas prices based on IPE data. Electricity
prices based on Spectron Data and Heren Data
4 Provides two fixed 'winter' discounts, totalling £40 for gas / £20 for
electricity in two instalments Nov 05/Feb 06. This will fully offset the
additional costs of energy against typical domestic consumption. A member of the
household must be in receipt of eligible benefits.
5 Provides peace of mind and security in a volatile market by providing the
customer a fixed price offering for gas and electricity until 2010. Electricity
is offered at a -4.8% discount and gas at a 2.8% premium against standard
prices. Customer taking both fuels at national average (20,500 kWh gas and 3,300
kWh electricity) and with gas representing 67% of total dual fuel bills, and
single rate electricity representing 33% consumption pays no additional cost.
Limited product offer, cancellation fee applicable. Excludes gas pre payment
customers.
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