British Gas Price Increase
British Gas today (12 October 2012) became the second of the Big 6 energy suppliers to announce energy price increases.
From 16 November 2012, the vast majority of British Gas’ 16 million customer accounts will see their gas and electricity prices increase by 6%. This will increase average dual fuel bills by £80 a year meaning customers paying by monthly direct debit will see their annual bills rise to £1,273 while those paying by cash or cheque quarterly will see bills rise to £1,350.
British Gas has blamed the reason for the increase on rising costs including rising wholesale prices, rising infrastructure charges and rising environmental costs as a result of government policies.
British Gas also announced additional help for customers by offering free insulation and applying broad criteria to the types of customer that qualifies for the Government Warm Home Discount. This is all very nice but is, of course, being paid for by customers through higher bills.
According to our analysis there are a number of interesting features of today’s announcement.
While we agree with British Gas’ assessment of rising infrastructure and environmental charges, we are less convinced about their use of wholesale gas prices as justification for the move. According to data from TheEnergyShop.com, forward wholesale gas and electricity prices are in fact both lower than they were 12 months ago (7% and 10% respectively).
After the increase, the new average British Gas bill will be almost identical to SSE’s new average bills. For a business where over half the costs are based on a very volatile commodity one might have expected a greater variance. British Gas has warned of further cost pressures, and by implication further price increases looking out into 2013.
British Gas has indicated that even after the increase their second half profits will be 15% lower than the same period of 2011. This implies 2012 H2 profits of around £214m implying year on year profit growth of 7%.
What we think
SSE and British Gas customers are both facing energy bill misery this winter. For them there is only one option to avoid the increase. Jump ship to a cheaper fixed rate deal. It is the only way to offset the increase and to pick-up an additional saving of £85. That means a total saving of almost £200 compared to the post increase prices. It’s a no brainer. Do it quickly. The cheap fixed deals are running out
Wholesale Market Data and Statistics