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Gas and electricity price rise: Q&A

By This is SouthDevon  |  Posted: October 12, 2012

British Gas customers will see their bills rise by around 6 per cent from November 16

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From next month 8.5 million British Gas customers will face higher bills, as the energy supplier is to raise domestic gas and electricity prices by an average of 6 per cent.

Coming into force on November 16, the hike is “unwelcome news for customers”, British Gas said today.

Meanwhile SSE, which trades as Scottish Hydro, SWALEC and Southern Electric, has already said it will raise its prices by an average of 9 per cent from Monday.

This afternoon Npower announced it will increase the price of gas by an average of 8.8 per cent and electricity by 9.1 per cent from November 26.

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Why are prices rising again, and how will you be affected? Find out with our simple Q&A.

Who will be affected?

British Gas said a total of 8.5 million customers in Britain will be affected by today’s announcement. Another one million customers already benefiting from fixed price contracts are unaffected, the supplier says.

Meanwhile SSE says around five million household electricity customers and around 3.4 million household gas customers in Britain will be affected by Monday’s price rise.

How much more will I have to pay?

British Gas customers will see their annual dual fuel bills rise by around £80, the supplier says.

This equates to a £1.50 per week average increase.

So where the average annual dual fuel bill currently stands at £1,187, it will cost £1,263 post November 16.

Meanwhile from October 15 SSE’s average standard dual fuel bill, for a customer who pays by monthly direct debit, will be £1,274.

This is up from £1,172 and represents an increase of £8.53 per month.

In the case of Npower, customers paying by monthly direct debit can expect to see their average annual dual fuel bill rise by £108.

Why are prices rising again?

Energy suppliers say there are a number of reasons why prices are rising:

- North Sea gas supplies are running out: Consequently, “British Gas now has to buy gas in a competitive international market, and pay the going market rate – which continues to rise.

“Prices in the wholesale market for gas this winter are around 13 per cent higher than those paid to secure gas for last winter.”

SSE echoes this: “The wholesale cost of energy represents around one half of a typical dual fuel bill.”

- The costs of the Government’s policies that will ensure a clean, energy-efficient Britain are rising SSE says initiatives, such as the Carbon Emissions Reduction Target (CERT) and the Warm Homes Discount, “are 30 per cent higher than they were a year ago and now represent around 10 per cent of a typical bill”.

- Britain’s national grid requires a major upgrade: This, British Gas explains, “is being funded through energy bills”. The cost of government policies and the national grid upgrade added £50 to the average household bill this year, and £60 next year, British Gas said.

- The costs of using the energy networks to distribute electricity and gas to customers’ homes, which are determined by Ofgem and represent around 25 per cent of a typical bill, “are 9 per cent higher than they were a year ago”, SSE says.

British Gas said today: “Around 85 per cent of costs behind the average dual fuel bill are largely beyond the control of British Gas”.

The supplier also insisted: “The company is making every effort to reduce its own operating costs, which are falling, while maintaining high standards of customer service.

“Unfortunately, these savings do not cover the other external cost increases the company is facing.”

Meanwhile SSE reminded its customers: “Earlier this year, a typical dual fuel SSE customer benefited from a 2 per cent reduction in their total bill as a result of SSE’s 4.5 per cent cut in gas unit prices.”

Pointing to the rising costs, in a letter to customers SSE Chief Executive Ian Marchant said: “These cost pressures mean an average increase of 9 per cent in our prices has become unavoidable.

“We have kept prices down for as long as possible and although we have had to do this now, we promise you there will be no more price increases before the second half of 2013 at the earliest.”

Have suppliers cut prices recently?

In 2011, all the big-six energy suppliers raised their prices, in some cases twice. But earlier this year they all made small price cuts, affecting either their gas or their electricity customers.

SSE cut its gas prices by 4.5 per cent in March, while British Gas lowered its electricity prices by 5 per cent in January.

Scottish Power reduced its gas prices by 5 per cent in February, while Npower reduced its gas prices by the same amount the same month.

E.On lowered its electricity prices by 6 per cent in February. The same month, EDF reduced its gas prices by 5 per cent.

I’m struggling to pay my bill. What help is available?

On its website British Gas details a number of ways it can help if you’re finding it hard to pay your bill.

The supplier says it may be able to:

- Arrange for you to pay your bill by instalments at an agreed rate.

- Agree on a more suitable payment method or tariff.

- Fit a pay as you go meter.

- Collect a weekly amount directly from your benefits.

- Provide you with advice on how to reduce your energy consumption.

It urges those who are struggling to call 0800 048 0404 or textphone 18001 0800 072 86268.

British Gas also said today it is helping customers to reduce their bills by offering:

- Free insulation provided and installed by British Gas, which would typically cost up to £350 per measure

- Free scaffolding for insulation (if needed) worth up to £450

- Free air vents (if needed) worth £100

- Up to £150 to help with the cost of loft clearance for eligible elderly customers and those on certain qualifying benefits

For more information, click here.

Meanwhile SSE urges struggling customers to contact them to discuss any discounts available by paying in different ways, any extra services that may help and who can help check for any government grants you could qualify for. Call 0845 0707 395.

On its website, it says it could:

- Help you decide whether to choose to pay for energy as you use it, with a Pay As You Go Meter, and install it for free and show you how to use it.

- Offer energy efficiency advice to help you reduce your bills

For more information, click here.

Are suppliers making big profits?

British Gas said today: “Despite the increase in prices announced today, assuming seasonally normal weather conditions, British Gas Residential profits in the second half of 2012 are expected to be around 15 per cent lower than for the same period of 2011.”

Meanwhile SSE insisted: “In the last financial year, SSE made an operating profit of £271.7m in its Energy Supply business, down almost 22 per cent from £347.7m in the previous year.

“Following this price change, SSE expects its average total profit from supplying energy to a domestic customer to be less than £50 per fuel – and this is before the deduction of costs like tax and interest.

“Over the medium term, SSE expects its profit margin (ie operating profit as a percentage of revenue) in Energy Supply to average around 5 per cent.”

It adds: “SSE does not expect its profit margin (ie adjusted operating profit as a percentage of revenue) in Energy Supply to exceed 5 per cent in this financial year.”

What makes up the cost of the average household energy bill?

According to British Gas, the average bill is made up of:

- Wholesale cost: 52 per cent for gas; 41 per cent for electricity

- Delivery to the home: 22 per cent for gas; 24 per cent for electricity

- Government charges: 11 per cent for gas; 20 per cent electricity

- Operating costs: 9 per cent for gas; 11 per cent electricity

- Profit: 6 per cent for gas; 4 per cent electricity

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