Centrica price cuts anger rivals
Wednesday 03 September 1997
The calls came after Centrica - the trading arm of British Gas - confirmed that it is to introduce its ValuePlus scheme in Kent, Sussex, Dorset and the former county of Avon. Under the scheme customers who pay by direct debit get 12 per cent off the standard tariff.
Ofgas immediately launched an investigation, inviting rival suppliers and customers to submit their views. Although these are almost certain to be universally hostile, there are doubts whether Ofgas will take any action since it has already approved the introduction of the ValuePlus scheme in south west England.
Nevertheless, independent suppliers and consumer bodies joined yesterday in attacking British Gas's move warning that it could stymie the development of competition as full liberalisation of the domestic gas market is rolled out between now and June of next year.
Jim Whelan, managing director of Eastern Natural Gas, the country's biggest independent supplier with around 250,000 domestic customers, said: "We believe that the premature extension of ValuePlus scheme will seriously undermine the continued growth of gas competition nationwide. The effect will be to discourage new suppliers and weaken smaller competitors to the detriment of growing customer choice."
Sue Slipman, director of the Gas Consumers Council, also sounded a note of caution, pointing out that it had opposed the introduction of ValuePlus in the south west as an example of predatory pricing.
She also called for Ofgas to commission an independent authority to establish whether sufficient competition had been established to allow Centrica to compete on price with rival suppliers.
Since the south west was opened up in April of last year 118,000 of the 500,000 gas customers in the region - just under a quarter - have switched to a rival supplier. A similar proportion have switched over in southern England since the market was opened to competition in February and March of this year.
What appears to have upset rival suppliers is the speed with which ValuePlus is being introduced in the latest trial area. Centrica waited almost a year before launching the scheme in the south west but has decided to offer it in southern England barely six months after the start of competition.
Mr Whelan warned: "Competition in other parts of the country could be still born if people can see that they have only to sit back for a short while and wait for British Gas to start cutting the price."
Calortex, one of the biggest rival suppliers also criticised the move saying that competition was not yet sufficiently established.
The Gas Consumers Council has recommended that where at least 80 per cent of consumers are aware that competition exists, British Gas should be allowed to start cutting its prices once its has lost 25 per cent of the market. But where consumer awareness is lower the council said that British Gas should have to wait until it had lost 55 per cent of the market.
Mike Alexander, managing director of British Gas Trading, said that research showed 95 per cent of customers in the trial areas were now aware that competition existed. But Ms Slipman said there was "a credibility gasp in the monopoly supplier being their own judge and jury".
The price cuts will be available immediately and will mean a saving of pounds 40 on the average annual bill of pounds 350 but a reduction of pounds 109 for large households with an annual bill of pounds 900.
Competition is due to be extended to a further 2.5 million households in Scotland and the North east from 1 November with the rest of the country joining up in phases between February and June of next year.
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