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Higher gas bill fear as price cap to go.

Gas customers could face higher bills next year after energy regulator Ofgem proposed an end to the last remaining price cap on British Gas.

They are likely to go up in order to reflect the doubling of wholesale gas prices over the last year, said Callum McCarthy, director general at regulator Ofgem.

'It's inevitable we will see some upward movement given there have been large increases in wholesale prices,' he said.

Mr McCarthy refused to be drawn on the level of price increase he was expecting.

Wholesale prices have climbed to 22 pence, compared with ten pence a year ago, mainly as a result of the dramatic rally in world oil prices.

Gas prices for industrial consumers have already risen but the tough competition in the domestic market, where prices have fallen 25 per cent since liberalisation began in 1996, has made retailers reluctant to put up their bills.

Mr McCarthy would not intervene to help suppliers who got into trouble as a result of the prices surge but he would act against companies found abusing their market dominance.

The number of competitors in the retail gas sector has fallen to 16 from 21 in July 1999.

While there have been mergers, a number of small suppliers have left the market, including Solihull-based Independent Energy, which called in the receivers in September, the Gas Supply Company and Elf at Home, owned by TotalFinaElf.

'Among the factors affecting their viability, these companies have pointed to high levels of wholesale prices,' said the regulator.

The regulator, a successor to Ofgas, said it was happy with the amount of competition in the sector, and said British Gas was free to increase prices on PromptPay, LatePay or Pre-Payment tariffs from next April.

A key condition was that in doing so the utility giant did not widen the difference between the amount customers paid on those tariffs, compared to those paying via direct debit.

British Gas direct debit customers currently enjoy an average saving of 11 per cent compared to LatePay or Pre-Payment tariffs.

The decision was widely expected within the City, and comes 17 months after Ofgem allowed British Gas to raise its direct debit prices.

But since then, direct debit bills have fallen slightly.

The average household spend per week on gas in the last ten years has fallen by 21p to pounds 6.49, despite increases in inflation.

The entrance of a raft of electricity companies into the gas supply market has reduced British Gas's market share to 71 per cent.

Centrica, British Gas's parent company, said it had 'no current plans' to raise prices, but would be watching the market very closely.

The Consumers' Association called the decision to lift the barrier on Pre-Payment prices 'premature', particularly given that British Gas has an 85 per cent market share for this payment method.

'We do not feel this proposal will benefit households on pre-payment meters,' a spokesman said.

'There is hardly any competition for pre-pay customers. These consumers include many on very low incomes who already pay far more for their gas supply than those on other tariffs.

'They are also the least likely to switch supplier because of a lack of information.'

The association's concerns were backed by views in the City.

'Centrica will raise its prices,' Ian Turner, a market analyst at Deutsche Bank said.

'It has a stable market share, which, given how much you can save on gas, seems to suggest the vast majority of us simply can't be bothered to switch.'

An Ofgem spokesman said it would wait and see what happened in April, and reiterated that it felt there were other options available to customers if they were unhappy with the prices they were being charged.

He emphasised that six million people have already decided to switch supplier since the market was de-regulated, with a further 60,000 switching every week.

The proposals were only in the consultation stage, and a series of meetings was likely to take place before a final document was published in February.
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Publication:The Birmingham Post (England)
Date:Dec 2, 2000
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