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Last Updated: Friday, 12 January 2007, 19:06 GMT
Fuel bills could fall by 30%
By Paul Lewis
BBC Radio 4's Money Box

Gas ring burning
The wholesale price of gas is 55% below its peak of June 2006
The cost of heating and lighting our homes could fall following a 50% drop in the wholesale price of gas in 2006.

One expert is predicting a 10% cut in the spring followed by further cuts to slash bills by up to a third.

But savings of that size could take until 2008/09 to feed through to customers.

Energy suppliers buy fuel in advance so the price they charge reflects the cost in the past.

Joe Malinowski founder of TheEnergyShop.com told Radio 4's Money Box programme

"The wholesale price of gas has tumbled. It is 55% below its peak of June 2006 and more than 50% lower than at the beginning of year. Electricity is over 35% lower than the start of 2006."

Delays

But he warned that the reductions in our domestic bills would take time because energy suppliers buy their gas and electricity well in advance.

"Long-term contracts have kept retail gas price increases lower than those of wholesale prices over the past two to three years and they will keep prices falling more slowly."

Nevertheless he predicts a significant cut quite early in 2007.

"We expect the first cut to be in the spring - order of magnitude about 10% for gas and electricity."

And ultimately he says prices could fall by nearly a third.

"The wholesale gas price for 2008/09 is 1.35p per kilowatt hour. Add transport, metering and a [profit] margin you should be selling that at 2.2p. British Gas sells it [to some customers] at over 3p so in theory it could fall by almost 30%."

New Year price rises

Despite these predictions the New Year will start with price rises for customers of Scottish and Southern Energy. They have already been warned of increases in their bills from January 1st. The cost of gas will rise by 12.2% and electricity by 9.4%. Joe Malinowski says this is the last gasp of the most recent round of price rises.

"They made a commitment to hold prices to the end of 2006 and were caught a bit flatfooted. They were well-intentioned but eventually had to put the increase through and it is happening now."

But this year he says those rises will be reversed.

"We should start seeing big falls and we will. But they will probably be [in] small and gradual [steps]."

BBC Radio 4's Money Box was broadcast on Saturday, 30 December at 1204 GMT.



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