Business

E.On to cut gas prices by 3.5%

Gas ring Image copyright PA
Image caption Wholesale gas prices have been relatively volatile, according to E.On

E.On is cutting its standard gas prices by 3.5%, equivalent to £24 off an average annual household gas bill.

The price cut will take place with immediate effect. German-owned E.On supplies gas and electricity to 4.5 million homes in the UK.

Tony Cocker, chief executive of E.On UK, said "We are the first supplier to reflect through our standard tariff the overall drop in wholesale gas prices."

Firms are under pressure to cut prices as wholesale energy costs have fallen.

At the weekend, Matthew Hancock, the Business, Energy and Enterprise Minister, wrote to the six biggest energy companies demanding price cuts because wholesale gas prices are 30% lower than a year earlier.

Labour leader Ed Miliband has said energy regulator Ofgem should be given new powers to force firms to cut gas and electricity bills when wholesale prices drop. Labour has also promised a price freeze in domestic energy were it to win power.


Analysis: Kevin Peachey, personal finance reporter, BBC News

Politics and business collide in the debate over domestic energy prices.

Remember that the Labour Party has vowed to freeze energy prices for 20 months if it wins the election this year.

The Conservatives have tried to turn the tables, using this pledge against the opposition, now that energy firms are under pressure to go further and cut prices.

But, in turn, Labour has shifted the focus of its narrative, saying regulator Ofgem should force firms to cut prices if wholesale costs fall.

E.On's chief executive says: "We urge all political parties to recognise the realities of the energy industry."

But the realities of winning votes mean that this may be wishful thinking.


Rest to follow?

E.On said that it had passed on what it could of the fall in wholesale gas prices, given that it bought much of its energy in advance to guard against volatile swings in prices.

"While oil prices have slumped, the gas price has remained volatile - some days up, some days down - and many of the other non-energy costs that we don't control but make up a customer's bill have increased and are set to increase further," Mr Cocker said.

"We have made this decision knowing that our ability to recover costs, should the market outlook change in the months or years ahead, may be limited but we urge all political parties to recognise the realities of the energy industry and help us to continue to do the best for all of our customers."

Image copyright PA
Image caption E.On is the first to move prices, but others may follow

Over the long-term, wholesale gas prices tend to move in tandem with oil prices. Brent crude has fallen to just over $45 a barrel - the lowest for nearly six years. Consumers have seen petrol prices falling as a result.

Energy firms said recently that savings had been passed on to customers on fixed deals. Those shopping around for a new deal would find that the cost was more than £100 lower than a year ago, according to trade body Energy UK.

However, only 40% of domestic energy suppliers are on fixed deals, with more on standard rates.

The move by E.On for two million customers on standard deals will now put pressure on the other suppliers among the so-called "big six" to do the same.

"It has been three long years since customers last benefited from price decreases to standard energy bills," said Stephen Murray, of price comparison website Moneysupermarket.com.

"We now call on the rest of the energy market to follow E.On's lead and make sure that falling wholesale prices are reflected in consumers' energy bills."

An Ofgem spokesperson said: "This is a small step in the right direction. We have consistently called for suppliers to explain the growing gap between falling wholesale prices and retail prices.

"Cutting prices is an explanation that consumers will understand and in a competitive market we would expect others to follow suit."

The remainder of the big six energy firms told the BBC individually that they kept pricing under constant review.


Are you an E.On customer? How will the company's move affect you? Please email your comments to haveyoursay@bbc.co.uk, including your telephone number if you are happy for a BBC journalist to contact you.

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