British Gas cuts pounds 40 off bills in South-west

British Gas is today expected to announce cuts in charges worth an average of pounds 40 a year for households in South-west England in a bid to win back domestic customers from rival operators.

This will be the first time British Gas has introduced different prices for customers in different parts of the country. But it will become an increasingly familiar feature as competition in the domestic gas market rolls out nation-wide.

Initially, the price reductions are likely to be limited to households that pay by direct debit - the area of the market where British Gas has suffered the heaviest loss of customers.

Since competitive trials were launched in the South-west region last April British Gas has lost 19 per cent of its customers to rival operators who are undercutting its standard tariffs by 15 per cent to 25 per cent. But the figure for those paying by direct debit is even higher at about 25 per cent. About 95,000 of the 500,000 domestic gas users in the area have switched to one of 10 rival suppliers.

Today Centrica, the supply arm of the newly demerged British Gas, is expected to announce it is introducing new tariffs in the South-west for direct debit customers which are 10-13 per cent below its standard tariff. This will still leave it more expensive than rival suppliers but it will halve the gap between Centrica and its cheapest rivals.

At present Centrica is allowed to offer direct debit customers nation- wide a 6 per cent discount on its standard tariff. This is worth just under pounds 20 a year on the average pounds 330 household bill.

The discount for direct debit customers in the South-west is expected to be roughly doubled. The charges will take effect immediately and Centrica is thought to be preparing to launch a local press and radio advertising campaign as early as tomorrow.

The proposed new tariffs have not been approved by the gas industry regulator, Clare Spottiswoode of Ofgas, and could result in a clash. Ms Spottiswoode could outlaw the price reductions if she decides the gas market in the South-west is still not fully competitive.

Centrica is expected to argue that competition has been firmly established with a quarter of its direct debit customers now lured away by rival suppliers. In addition, Ofgas surveys in the region have shown that customers are fully aware of the opportunities available, with nine in 10 able to name at least one rival supplier and eight in 10 of those who have switched supplier saying it was a very simple exercise.

However, rival operators have already served notice that they will fight to prevent Centrica being allowed to offer lower prices, arguing that competition is still not properly developed. Calortex, which has about 40,000 customers in the South-west, says competition is not yet sufficiently established.

A second phase of trials began among another 600,000 customers in Dorset and the former county of Avon on 10 February and the trials will be extended to a further 900,000 households in Kent and Sussex from 7 March.

Observers believe Centrica may lose market share more quickly in the south of England because there are more customers with larger bills paying by direct debit than in the South-west. Last month, rival suppliers in the South-west came under fire from the Gas Consumers' Council for discriminating against customers on low incomes or benefit support by offering wealthier direct debit households prices which were up to 34 per cent cheaper.

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