British Gas rises 'to cost one million customers'

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More than one million customers will desert British Gas after its massive price rises, analysts said yesterday as senior Labour backbenchers accused the Government of creating supply shortages out of its energy policy.

More than one million customers will desert British Gas after its massive price rises, analysts said yesterday as senior Labour backbenchers accused the Government of creating supply shortages out of its energy policy.

Citigroup, the investment bank, said British Gas would emerge as the priciest provider in the UK as rivals decided not to follow its inflation-busting 12 per cent rise. On Tuesday the company said residential prices would rise 12.4 per cent for its 12.2 million gas customers and 9.4 per cent for its 6.2 million electricity clients from 20 September. The rise massively outstripped rises of between 5 and 8 per cent imposed by British Gas's five main rivals.

Peter Atherton, an analyst at Citigroup, said: "The competition is unlikely to follow suit until new year, leaving British Gas as the most expensive in the market. Clearly high prices coupled with the inevitable media spotlight will lead to further customer losses. We expect it to lose a total of 1.23 million customers during 2004 and 2005 as a result of the price increases."

However, he said the price increases would enable Centrica, British Gas's owner, to achieve a target 8 per cent margin on its residential business, although there was a risk British Gas, which controls 60 per cent of the domestic market, could be hit by regulatory action if it was abusing its market position.

Yesterday Ofgem, the government regulator, said it could not say whether it would investigate the rises until it had completed a separate investigation into the spikes in gas "pool" prices last winter.

British Gas has blamed its increases on a 28 per cent rise in wholesale gas prices over the past year and the depletion of reserves, which forced the UK to import larger volumes of gas.

Yesterday two former Labour energy ministers - from the 1970s and this decade - criticised the Government for handing energy policy over to a regulator. Tony Benn, the energy secretary under Jim Callaghan, said he had favoured coal-fired power stations and limited wasteful use of North Sea gas. "Thatcher closed the pits although there are 1,000 years of coal underground and we are now paying for it with an oil and energy crisis," he said. "We were trying to limit the use of gas-fired power stations but I am not sure that the Government has an energy policy."

Brian Wilson, the energy minister until last year, said the "die was cast" for massive volatility in gas prices over the coming years. "It was a mistake to put the emphasis on driving down the generated cost of electricity to unsustainable levels since that drives out generating capacity and then the prices comes bouncing back again," he said.

Mr Wilson warned Britain would become "incredibly dependent" on gas imports. "Energy is so important to society that the Government has to take a view and it is incorrect to hand it over to a regulator which has some crazy ideas on economic orthodoxy," he said.

Stephen Timms, the Energy minister, admitted the UK would become a net gas importer in 2006 but said the Government was not "unduly worried". He said there was no evidence oil companies were withholding supplies to boost prices and urged households to "shop around".

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