Page last updated at 15:21 GMT, Thursday, 19 February 2009

'Long-term rise' in energy prices

Gas flame
Energy firms have come under pressure to cut prices

Uncertainty in the supply of gas could push up costs and affect domestic energy bills in the long-term, according to an analyst.

Ian Parrett, of Inenco, says prices could be pushed up when the economy starts to recover.

But others have suggested that a second round of energy bill cuts could be seen this autumn as wholesale prices fall.

More than seven million British Gas customers saw a 10% cut in gas bills take effect from 19 February.

Price cuts from three of the other "big six" energy companies come into effect towards the end of March.

Scottish & Southern will cut the price of electricity by 9% and gas by 4% from 30 March.

EDF Energy has announced it is cutting electricity bills by an average of 8.8%, and E.On has announced a 9% cut. However, both their gas tariffs will remain unchanged.

Wholesale prices

Joe Malinowsky, of price comparison website, said the price cuts were not deep enough.

"It by no means reflects the extent to which wholesale electricity and gas prices have fallen since the peaks of last September," said Mr Malinowsky.

Bar chart shows consumer gas prices since 2003

He said there was a "mixed bag" of price changes because of the variety of price increases made last year. He expected that differential to narrow following the latest round of cuts.

The final two companies that make up the major energy suppliers - Npower and Scottish Power - are expected to follow suit in announcing domestic price cuts shortly.

Tom Lyon, spokesman for price comparison site, said the average dual-fuel customer was likely to see a 4.5% fall in bills. This meant that the average bill was still 300 higher than at the start of 2008.

More cuts?

Each of the suppliers base their tariffs on long-term wholesale contracts and so there is a lag between supply costs coming down and cuts in domestic bills.

With uncertainty about the supply of imported gas and a decline in the amount of generation capacity, it is likely that prices will be pushed back up in the longer term
Ian Parrett, Inenco

A review of the connection between wholesale prices and domestic bills is set to be published by the energy regulator Ofgem soon.

While Mr Malinowsky said he expected a second round of price cuts in the autumn, Mr Lyon said this was looking more and more unlikely.

Mr Parrett, of Inenco, added that energy suppliers might also be dragging their feet over price reductions because of the economic downturn.

"The economic situation has resulted in reduced demand for gas, which obviously has an implication on profitability for the energy supply companies. One possible way of maintaining profitability is by keeping the prices up," he said.

Some suggest that as early as 2010, domestic energy bills could start to rise again.

"With uncertainty about the supply of imported gas and a decline in the amount of generation capacity, it is likely that prices will be pushed back up in the longer term," said Mr Parrett.

This echoes comments made by Ian Marchant, chief executive of Scottish and Southern Energy, to a committee of MPs earlier in February.

He said wholesale energy prices for summer 2010 were about 10% higher than they were now.

'Unfair pricing'

In the meantime, some customers are still set to benefit as a result of an investigation by Ofgem into unfair pricing.

The regulator said that since investigations began, more than 300m had been taken off bills for people including "home" area customers, as well as pre-payment meter and off-mains customers.

It added that the big six energy suppliers had indicated that further price cuts should reach at least 200m for those who do not have access to mains gas.

Consultation on changes to the terms of companies' licences, so that unjustified and unfair pricing is prohibited legally, comes to an end on February 20.

An Ofgem spokeswoman said the regulator hoped a conclusion would be reached on the issue as soon as possible.

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