Centrica fuels the power price war

It all kicked off last week when Centrica - the owner of Scottish Gas and British Gas - said it was to slash prices for its 1.5 million gas and electricity customers.

This will see standard tariffs fall by 17 per cent for gas and 15 per cent for electricity from 12 March - reducing bills of customers who take both fuels from Scottish Gas by 170 a year.

It said for the overwhelming majority of UK energy customers, Scottish Gas will be the cheapest gas supplier.

Centrica explained improved supply of gas to the UK had led to cuts in wholesale prices, which it is now passing on to customers.

Sam Laidlaw, Centrica's chief executive, said: "The billions of pounds we have committed to gas contracts underpinned the construction of new undersea pipelines that are now delivering additional gas supplies to the UK. These new supplies of gas have directly led to the fall in wholesale prices which we can now pass on to our customers. Our price cut still enables British Gas to make a sustainable margin in 2007 and allows for further investments in the future."

At that time, rival supplier Powergen said it also planned to cut its prices. On Thursday, it hit back with the launch of four newly priced products ahead of its wider reduction of domestic energy prices which will be announced shortly.

Powergen said on the day its Energy Guarantee, Electricity Guarantee and Gas Guarantee are all priced below Scottish Gas's recently announced March prices and are guaranteed to be cheaper than Scottish Gas until 1 September 2008. If Scottish Gas's standard prices fall further, then Powergen's "guarantee" products will follow.

Powergen has also revised its online tariff to ensure that it remains competitive. It said its Energy Online Saver now offers a saving of 133 compared with an average Scottish Gas dual-fuel customer paying by quarterly cash/cheque on their new prices.

But existing Powergen customers not already on the new and re-priced tariffs would have to switch to take advantage of the cost savings and the group has not given a date when it will cut prices across the board.

Energywatch, an independent energy watchdog, described Powergen's announcement an "attempt to buy some time" before following Scottish Gas in passing on lower wholesale prices to customers.

uSwitch, an online comparison site, described Powergen as launching "the latest salvo in the energy price war". It is also adding heat to the online market by introducing new online discounts.

Geoff Slaughter, product manager at uSwitch.com, said: "Powergen is hitting straight back at with this guarantee and setting a challenge to all the other providers who have yet to make a move. It is also taking the online price war to the regions. The message for consumers is coming in loud and clear - the market is being shaken up, but the best deals to be had are still online."

According to analysis by uSwitch - see the table above - Powergen Online Extra Saver offered the best dual-fuel deal in the Scottish Hydro region, while Scottish Gas Click Energy 2 was the most competitive in the ScottishPower region on Thursday. By Friday, Scottish Gas was the cheaper of the two.

Moneysupermarket.com, another comparison site, said the move by Powergen to offering varied discounts across UK energy regions could instigate a regional price war between providers keen to increase market share while preserving profit margins.

Paul Schofield, head of utilities at moneysupermarket.com, said: "In a move which suggests the supplier feels unable to compete with British Gas's price cuts across the board, Powergen has clearly taken a strategic decision to target specific regions with significantly higher discounts for its online tariffs."

The moves by Centrica and Powergen are likely to just be the tip of the iceberg so the advice is to keep your eyes peeled for future reduction than could save you hundreds on your heating bills.