Wednesday, 9 January 2008

Gas giants find new way to push up prices

A round of punishing gas and electricity price rises has been set in motion, but reports of a 15% rise across the country do not tell the whole story. Some consumers will pay much more purely because of where they live.

Npower was the first supplier to raise prices, but the remaining members of the 'big six' – British Gas, Scottish & Southern Energy, Scottish Power, Powergen, and EDF Energy – are expected soon to follow suit.
The headlines were grabbed by Npower's 17.2% increase for gas and 12.7% increase for electricity, but hidden within the new pricing structure were regional variations that mean some regions will pay much more.

Users in London will pay an extra 21.7% for combined gas and electricity, while those in the North West will pay 20.8% more. Other regions, including the Midlands and Yorkshire, will pay less than the reported increase.

The discrepancies in price are due to suppliers applying, for the first time, regional variations in gas prices. Npower joined Scottish Power and Scottish & Southern Energy, who were each charging more to customer in the North West and less to those in Scotland.

Suppliers have justified the change by arguing that it costs more to deliver gas to some regions than to others. The distance the gas needs to be piped and the state of the pipes that carry the gas accounts for the differences.

However, consumer groups - who point out that changing suppliers does not mean a change in the gas that flows through the pipes - suggest that new pricing strategy is more to do with exploiting regions where customers have shown themselves to be reluctant to switch supplier. Suppliers see they can charge more in these regions with a lower risk that customers will seek a cheaper alternative.

Energywatch, the independent consumer watchdog for the energy industry said that the Npower move would create confusion. A spokesman said: 'Npower's move is likely to mean the development of regional gas markets with consumers having different unit costs for gas depending on where they live. This means more confusion for consumers in an already complex marketplace.

'To get a better deal, it is vital that they use postcode-based internet comparison sites to be certain they're getting advice specific to their location. Consumers should use the price comparison sites accredited by the energywatch Confidence Code.

Whatever the reasons for the differences the industry regulator, Ofgem, is reluctant to step in to prevent potential inequities in the system.

A spokesman for Ofgem said: 'We are not in the business of dictating how suppliers should set prices. If they become uncompetitive in a region they stand to lose customers.'

The increases applied by Npower will only affect its 6m customers, but customers of other suppliers could see similar regional variations if they apply the same logic when raising prices.

Ed Monk
full article

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