British Gas: Pricing Announcement

Centrica PLC
                  

EMBARGOED TO: 14:30 Wednesday 30 July 2008

                        British Gas: Pricing Announcement

    --  Prices for dual fuel to increase by 25 per cent.

    --  Lower price increase of 21 per cent for dual fuel prepayment customers.

    --  Prices for electricity to increase by 9 per cent and gas by 35 per cent.

    --  No increase at all for 2.1 million customers on fixed price tariffs.

    --  Launch of Essentials Extra: no price increase for vulnerable customers
        until April 2009, saving up to £214 per customer1, plus a home energy
        audit and energy efficiency measures to help reduce energy consumption
        and cut future bills in a sustainable way.

    --  Nil premium fixed price tariff launched to guarantee prices until
        September 2011.

    --  Winter 2008/2009 wholesale gas prices up 89 per cent on the previous
        winter, which represents an increase in market commodity costs of around
        £2 billion.

    --  British Gas Residential profits for first half of 2008 down 69 per cent.

    --  Committed to no further price rises for standard tariff customers in
        2008.

British Gas today announced that soaring wholesale energy prices have forced it
to increase tariffs for domestic gas and electricity.

Wholesale gas prices for the coming winter have increased by 89 per cent on the
previous winter - up from 48.0p/th2 to 90.8p/th3. Wholesale electricity prices
have increased by 72 per cent - up from £49.62 MWh4 to £85.58 MWh5 over the same
period.

The increase in wholesale prices is the result of:

    --  Diminishing UK gas reserves: the UK will import 40 per cent of its gas
        needs this year, up from 27 per cent last year.

    --  The UK is now buying gas in a global market: prices are strongly linked
        to record oil prices, which have doubled since spring last year.

    --  Increasing global demand: countries in all parts of the world, including
        fast-growing Asian economies, are attracting gas cargoes at oil-inflated
        high prices and thus the volume of gas shipped to the UK has fallen 60
        per cent6.

British Gas Managing Director, Phil Bentley, said: 'We very much regret that we
have had to make this decision at a time when many household budgets are already
under pressure. The simple fact though, is that we have entered an era of
unprecedented high world energy prices. The only answer to cope with higher
energy prices, I'm afraid, is for all of us to be more energy efficient and we
will be contacting all our British Gas customers to show how they can save
energy to try and offset these price rises.'

The retail price increases, averaging 25 per cent or 72p per day for a dual fuel
customer, come in with immediate effect. However, 2.1 million customers on fixed
price tariffs will be unaffected.

British Gas has around 340,000 Essentials accounts and by holding prices flat
until after the winter, those customers will save up to £2141. In the 12 months
to April 2009 British Gas has committed to spend £43 million on support for its
Essentials customers - the most of all the six major energy retailers.

British Gas has also launched Essentials Extra - a package of benefits that will
allow its most vulnerable customers to control their energy bills on an ongoing
basis. Along with benefiting from a delay in the price increase until after
winter, Essentials customers will be offered a home energy audit to identify
measures that can be taken in their homes to cut consumption and bring down the
cost of energy when prices rise after winter. Where suitable, British Gas will
then offer access to free energy efficiency measures such as insulation. This
package will help Essentials customers take control of their bills in a
sustainable way.

This initiative is part of a broader programme of working with the Government to
try to reduce the impact of soaring wholesale energy prices for the most
vulnerable customers.

British Gas will also spend £900 million over the next three years installing
energy efficient products in customers' homes - the largest such initiative in
the UK. Its ongoing Green Streets programme is demonstrating that reductions in
energy usage of up to 30 per cent are possible through a mixture of expert
advice and energy efficiency installations from British Gas7. Furthermore, in
2007 British Gas installed 17.3 million energy efficient products, helping more
than 6.4 million households save money, and 1.8 million people have completed
British Gas' Energy Savers Report, recommending average savings of £172 per
annum.

To protect customers from the impact of wholesale market volatility, British Gas
is today launching a new fixed priced tariff without a premium. Fixed Price 2011
will offer customers the opportunity to fix their gas and electricity prices at
today's revised rates until September 2011. British Gas also confirmed that
there would be no further price increases for standard tariff customers in 2008.

Mr Bentley continued: 'We're working hard to take costs out of the business and
are on target to save £60m this year, but we can't absorb the impact of such
high wholesale prices, which are increasing the market costs of the energy
procured for our customers by over £2 billion. We will continue to do all we can
to protect our customers from high prices. We are delaying the price rise for
our vulnerable customers until after next winter, lowering the price increase
for prepayment customers, launching a new fixed price tariff and helping all of
our customers to make their homes as energy efficient as possible.'

'British Gas leads the industry in securing new sources of energy for the UK,
from bringing in new gas supplies and building the world's largest offshore wind
farm, to completing the first modern power station to be built in the UK for
eight years. However, these investments are costing billions of pounds and we
can't sell energy at a huge loss.'

Along with rising wholesale energy prices, customers' bills have also been hit
by increasing transportation and distribution costs and the cost of meeting
Government targets for renewable electricity generation and carbon emissions
reduction, which have added £32 to the average dual fuel bill8.

In line with the guidance given in the Interim Management Statement in May,
operating profit for British Gas Residential in the first half of 2008 was £166
million, down by 69 per cent from £533 million in the same period last year, a
pre-tax operating margin in the first half of 2008 of 4.3 per cent.

Given current record forward wholesale prices for the coming winter, after this
price increase British Gas Residential's operating margins in the second half of
the year are forecast to be broadly in line with the first half performance.

Notes to editors

All bill increases for standard tariff at industry average annual consumption
(20,500 kWh for gas, 3,300 kWh for single rate electricity), averaged across all
regions and standard payment methods, rounded and including VAT at 5%.

1 Represents the average dual fuel saving for a Pay As You Go Energy Essentials
customer versus otherwise increased rates for the months August 08 to March 09
inclusive. Based on industry average annual consumption, using a seasonal
profile of consumption, averaged across all regions, rounded and including VAT.

2 Average of Heren and Argus: Average month ahead for winter 07/08 = 47.96p/th.

3 Average of Heren and Argus: Forward price for winter 08/09 as of close on 28th
July = 90.83 p/th.

4 Argus: Average of winter 07/08 outturn prices = £49.62 MWh

5 Argus: Forward price for winter 08/09 as of close on 28th July = £85.58 MWh

6 Waterborne: The UK imported 1.413 million tons of LNG between 1 October 2006
to 31 March 2007 in 24 cargoes. In the same period 2007/08 the UK imported
589,000 tons on 11 cargoes - a difference of 58.3%.

7 IPPR - Green Streets: Analysis and policy implications - Initial Results (July
2008).

8 Total annual costs incurred per customer for Transport & Distribution - £215,
CERT - £32, ROC - £11. Based on a dual fuel customer at industry average annual
consumption, rounded and excluding VAT.

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