Gas price cuts are cold comfort

gas energy cost©

The reduction in gas prices announced by three of the Big Six energy companies don't go far enough, Citizens Advice say.

Scottish Power is the third of the UK's biggest energy suppliers to reduce prices, by 4.8%, but customers won't benefit until February 20th.

Their news follows British Gas's announcement of a 5% cut from the end of February, and E.On's 3.5% reduction of its gas tariffs, effective immediately.

The cuts come after Business, Energy and Enterprise Minister Matthew Hancock wrote to the biggest companies demanding they lower their charges to better reflect the reduction in wholesale costs.

These have dropped dramatically in recent months, with gas prices 30% lower than they were this time last year.

Too little too late

British Gas say their cuts reflect the fall in wholesale gas prices - which accounts for about half the cost of our bills.

But a reduction of 5% still seems stingy considering how much wholesale costs have dropped in the past year, and that overall energy prices went up by an average of 137% from 2003 to 2012.

So it's not surprising that Citizens Advice and other campaign groups are complaining that the cuts aren't big enough, and don't come into effect soon enough.

E.On reduced its prices immediately after announcing them on January 13th. But customers of British Gas and Scottish Power will have to wait until towards the end of February - after the worst of the winter, and the highest demands on gas heating, can be expected to have passed.

Adding to this is the fact that not everyone will benefit from the reductions. British Gas is only cutting prices for standard variable and Fix and Fall customers, while E.On and Scottish Power are reducing just their standard variable tariffs.

The figures

Based on Ofgem's figure for average annual gas consumption (13,500 kWh) and the local price for each company's standard variable rate tariff, we worked out what the announced cuts would mean in terms of unit price, average yearly bill and any savings made:

Supplier Standing charge Pre-cut price per kWh Annual bill Post-cut price per kWh Annual bill Saving
British Gas 26p/day,
4.650p £722.65 4.417p £691.20 £31.45
E.On 21.903p/day,
4.323p £663.55 4.172p £643.19 £20.43
Scottish Power 27.39p/day,
4.201p £667.11 3.999p £639.88 £27.23

Prices based on standard variable tariff, single fuel, paid by monthly direct debit.

As exact prices depend on the area where a customer lives, the figures will vary slightly from region to region.

Worth noting is that the price cuts also don't affect standing charges.

Complaints up

As mentioned, energy prices have rocketed in recent years - as have complaints about the providers.

Scottish Power's customers will find savings of less than £30 a year little comfort in the face of the billing and account issues that have plagued them since the company switched to a new billing system.

They used to be one of the better big suppliers, with customer satisfaction levels second only to SSE's, but now only Npower receives more complaints, and late last year they received a warning from Ofgem over their service and handling of complaints.

Meanwhile British Gas have been told to pay £11.1 million for failing to meet their obligations to improve the energy efficiency of homes in some of the most deprived areas of Britain.

Fuel poverty

For the people living in energy inefficient housing, and those on low incomes, a saving of around £30 a year seems somewhat pathetic.

For example, the Energy Bill Revolution says that if the energy efficiency of our housing stock was improved, it could save affected households around £300 a year.

Meanwhile the fuel poverty gap - the difference between a household's required fuel costs and median required fuel costs - has risen almost constantly over the past 10 years.

In 2003 the gap was £621 million, an average of £254 per affected household. By 2012, it had risen to just over £1 billion, an average of £443 each.

In addition, households with prepay meters - again, often the most vulnerable or lowest income homes - pay an average of £80 a year more for their energy than customers paying on credit, and they have fewer, less competitive tariffs to choose from.

Citizens Advice say more than three quarters of people on low incomes are worried about the cost of heating their homes, and more than a quarter say they simply can't afford to heat their homes.

We've covered the help available for the most vulnerable here, but rebates, allowances and grants do nothing to address the issue of high prices.

Even Ofgem seems limited in what it can do. Labour say the regulator should be given the power to force suppliers to cut bills when wholesale prices drop - and the party have promised to freeze prices until 2017 should they get into power.

In the meantime, with much of Britain having its coldest snap so far this winter, many will be relying on the prospect of cold weather payments to help cover costs. At £25 for every qualifying week, just one payment could be more than some will save on their annual bill as a result of the suppliers' cuts.

EDIT: Since we wrote this piece last week, the other three big providers have announced their variable gas prices are being cut too.

EDF are cutting prices by 1.3% from February 11th, Npower are bringing in a 5.1% cut from February 16th, while SSE are cutting theirs by 4.1% - from the end of April.

SSE have also committed to extending their freeze on price increases by six months, meaning prices may come down again, but they won't go up again until at least July 2016.

Supplier Standing charge Pre-cut price per kWh Annual bill Post-cut price per kWh Annual bill Saving
EDF 26.25p/day,
4.079p £644.12 4.026p £636.96 £7.16
Npower 14.385p/day,
4.57p £669.46 4.337p £638 £31.46
SSE 16.44p/day,
4.65p £687.76 4.459p £661.98 £25.79

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