Independent suppliers to oppose British Gas price cuts

Independent gas suppliers attempting to gain a foothold in the emerging domestic market yesterday said they would fiercely oppose plans by British Gas to make selective price cuts to homes in the South-west.

The gas giant claims competition in the region is well established, but the proposals, which are expected to be put to Ofgas, the industry regulator, in a few weeks, are also likely to incur the wrath of the Gas Consumers Council. The customers' watchdog is increasingly concerned that poorer households have gained little from competition and over the weekend warned that those on low income or benefit were paying significantly more for gas.

The row comes as expectations are being lowered for the number of homes likely to switch away from British Gas in the second wave of the competitive gas market, which starts today covering 500,000 homes in Avon and Dorset.

A team of executives at Centrica, the soon-to-be demerged supply division of British Gas, is devising a package of discounts which at first will only target households in the South-west. It will mean for the first time in decades consumers in different parts of Britain will no longer pay the same basic tariff and follows indications from British Telecom that it is also looking at differential pricing around the country.

A British Gas spokeswoman yesterday confirmed that one possibility under consideration was to offer bigger discounts to more affluent households paying bills through direct debit. "We have got to decide how we phrase this and see how the regulator responds. We are looking at parts of the market in the South-west where we are losing most customers."

British Gas can only make selective price cuts if Ofgas agrees, basing its judgement on whether genuine competition has become established. An Ofgas spokesman explained that "there's nothing to stop them coming to us and arguing that competition is already established in the South-west. However, we don't necessarily just look at market share."

A source close to the regulator said: "You could argue British Gas has got more than 80 per cent of the market without cutting prices. On that basis they've hardly done badly."

Last night Neil Lambert, joint general manager of the leading independent supplier in the South-west, Calortex, insisted he would strenuously object to any moves by British Gas to cut prices. "We've invested substantial sums and we are looking to Ofgas to restrain British Gas until competition has taken hold. We have about 40,000 customers there so far, nothing like enough."

Since the first competition trial began last May for 500,000 homes in Devon, Cornwall and Somerset, British Gas has lost 90,000 customers. Independent suppliers can offer as much as 20 per cent off British Gas's basic tariff because they are not locked into buying more expensive gas from long-term take-or-pay contracts.

The spat over future differential pricing comes as the Gas Consumers Council issued a warning that direct debit customers are already paying a quarter less on average than those on pre-payment meters. It described the differentials as "socially unacceptable".

But a spokeswoman for Midlands Electricity, which was criticised for having the biggest differential in prices, hit back at the GCC.

"Our tariffs have been notified to Ofgas and the GCC and our standard tariff is the cheapest of all competing suppliers. The difference in our charges to direct debit customers and those on pre-payment meters reflects the different costs of serving these households."

According to the GCC figures, based on a study by the National Right to Fuel Campaign, Midlands gas customers who pay by direct debit enjoy bills 38 per cent cheaper than pre-payment meter customers.

British Gas and Calortax have the smallest differential at 14 per cent while others range from 17 to 34 per cent.

Midlands accepted that there was a marked differential but it said that its standard tariffs were the lowest of any rival competitor, undercutting British Gas by 20 per cent for direct debit customers and by 4 per cent for those using meters.

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