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Higher fuel prices are 'inevitable' warns British Gas

Michael Harrison,Business Editor
Tuesday 10 May 2005 00:00 BST
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British Gas warned yesterday that a further rise in domestic fuel bills was "inevitable" because of the surge in the wholesale price of gas.

The company, which increased gas and electricity prices twice last year, said that if the wholesale cost of gas stayed at its current level then an "appropriate" retail price increase would be necessary to protect profit margins.

Last year, British Gas, part of the Centrica group, increased gas prices by 18 per cent and electricity charges by 12 per cent, with the result that it lost almost 1 million customers. Yesterday the company disclosed that a further 382,000 customers had deserted it in the first four months of this year.

Despite the continued high level of customer defections, the Centrica chairman, Roger Carr, told the annual shareholders' meeting that "at this stage, price increases are inevitable", although he did not say when and how big they would be.

Forward wholesale gas prices for the last quarter of this year and the first quarter of next year are 25 per cent higher than they were in February and 40 per cent higher than last December.

British Gas executives said they were at a loss to explain the sharp increase, saying that market fundamentals did not support such a big movement.

Higher oil prices and the fact that the UK is now a net importer of gas are driving wholesale prices higher. Centrica also blames lack of competition and transparency in the European gas transmission market for making prices higher than they ought to be.

But offsetting that, new liquified natural gas import facilities are due to open at the Isle of Grain in the next two months and the capacity of the gas interconnector from Belgium is being increased this year. Both of these should be putting downward pressure on prices. The consumer body Energywatch said no one should be surprised if other energy suppliers joined British Gas in raising prices.

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