First of 'big six' cuts gas prices

Energy firm E.On cuts gas prices by 5.1%

  • 20 January 2016
  • From the section Business
gas pipelineImage copyright Getty Images
Image caption There has been criticism that prices have not been cut in line with falls in the wholesale cost of gas

E.On has announced a 5.1% reduction in its standard gas price for residential customers.

The company said the cut was the price equivalent of £32 off the average annual bill.

It is the first time in six months that any of the big six energy firms have cut their prices.

Last week both the regulator and the prime minister expressed concerns that prices were not being cut in line with falls in the wholesale cost of gas.

E.On also claimed it now has Britain’s cheapest fixed energy tariff, with the launch of a one-year dual fuel product with an average price of £783.

‘Right step’

The news was welcomed by the regulator, Ofgem.

“This is a step in the right direction and it is good to see some movement in energy prices for consumers,” said Dermot Nolan, the chief executive of Ofgem.

“We have consistently called on suppliers to explain why retail prices are not falling and this price cut goes some way towards addressing that challenge.”

But consumer groups said that prices should be reduced even further.

“With wholesale prices predicted to remain low this year, consumers should be seeing bill reductions of at least 10% – around £120 a year – on both gas and electricity,” said Ann Robinson, the director of policy at price comparison site Uswitch.

The wholesale price of gas fell by 34% over 2015, according to market information provider ICIS.

Cheaper bills

However E.On – which has 4.5m customers in the UK – said it had to take account of other factors apart from wholesale prices.

It said that only 46% of a standard dual fuel bill is made up of wholesale costs. 25% is the cost of transmission, as suppliers have to pay for use of the gas pipes across the country.

As a result Tony Cocker, the chief executive of E.On, defended the price cut of 5.1%.

“The underlying position is that whilst the price we pay for our customers’ energy has fallen, we also have to take account of managing the various other risks in the market which can change, and the fact that many of the other costs that we don’t control – but do have to bear – have increased or may increase.

The move comes after the industry regulator Ofgem, politicians and poverty campaigners expressed concern that large energy companies were not cutting prices despite a sharp fall in the price of crude oil and gas.

Dermot Nolan, chief executive of Ofgem, said last week that domestic gas and electricity prices should be cheaper “for the vast majority of people”.

An ongoing investigation by the Competition and Markets Authority (CMA) has been examining the energy market for 18 months.

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