Npower and British Gas price rises fuel fears of 'cold winter' for households

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Npower and British Gas fuelled fears of a "cold winter" for more households after they raised gas and electricity prices.

Npower announced it was raising average gas tariffs by 8.8pc and 9.1pc for electricity on Friday afternoon - a £9 a month rise for its 3m customers.

Hours earlier, British Gas increased energy costs for 8.5m customers by 6pc, adding £80 to the average dual fuel bill.

Both companies blamed rising costs largely outside their control, but with food and some mortgage costs also on an upward path there were fears about how the elderly and hard-up will cope with the latest rises.

Unions and consumer groups attacked the increases and called on the Government to take urgent action to tackle rising fuel prices. Some were critical of a 23pc rise in half-year profits at its Britsh Gas's residential arm to £345m.

Audrey Gallacher, Director of Energy (NYSEArca: JJE - news) at Consumer Focus, said the price rises would push even more households into fuel poverty, with over six million UK households already struggling to afford their bills.

Npower's chief commercial officer Paul Massara said: "There is never a good time to increase energy bills, particularly when so many people are working hard to make ends meet.

"But the costs of new statutory schemes, increases in distribution charges and the price of gas for the coming winter are all being driven up by external factors, for example government policy."

Phil Bentley, the British Gas managing director, said he knew increase was "unwelcome news for customers", but said: "Britain's North Sea gas supplies are running out, and British Gas had to pay the going rate for gas in a competitive global marketplace.

"Furthermore, the investment needed to maintain and upgrade the national grid to deliver energy to our customers' homes, and the costs of the Government's policies for a clean, energy-efficient Britain, are all going up."

The annual dual fuel bill for British Gas customers with average consumption will rise to £1,238, the company said.

Britain's biggest energy supplier said the increase will come into effect on November (Xetra: A0Z24E - news) 16 , just as the nights grow darker and colder. nPower's increases start on November 26.

Of the £80 rise, British Gas said £50 will go on "non commodity" costs, such as the cost of delivering energy to homes, meeting Government environment policies such as the Renewables Obligation and other social costs, such a feed in tariffs.

The rest covers the cost of wholesale gas, operating costs, and profit. British Gas expects wholesale gas prices to rise 13pc over the winter.

The average cost of delivering energy to homes has risen by around £25 over the year and this is expected to rise by a further £40 next year. While investment in upgrading Britain's gas and electricity grids are expected to add more than £15 to the cost of supplying households.

Other companies are expected to follow British Gas and nPower in raising prices.

In August, SSE (Xetra: A0RFBG - news) said it would increase tariffs by 9pc on average, hitting about 5m electricity customers and 3.4m gas customers. The price rises start next week.

That leaves E.On, EDF (Paris: FR0010242511 - news) and Scottish Power.

Mrs Gallacher, of Consumer Focus, said: "Wholesale gas prices are volatile and suppliers will look to pass on those commodity costs to their customers. But despite many trying, no-one has managed to convince consumers of the necessity for price rises in the context of wholesale prices and company profits.

"It is difficult to achieve ... We would encourage consumers to do what they can to cut their bills by switching tariff, payment method and supplier. But we need much more focus on the big steps that Government and the regulator can take to insulate consumers from the effects of growing energy costs."

Ann Robinson, director of consumer policy at uSwitch, said the increase would leave many households facing a winter where they are "scared to turn on heating for fear of the cost".

Customers who want to escape these rise can fix their energy prices for up to two winters. The cheapest fix for most people available on the market is with First Utility until March 31 2014, but there are exit fees of £30 per fuel.

For those who do not want to sign up to a deal with an exit fee, Scottish Power's deal locks in prices until March 31, 2014 and has no exit fees.

Centrica (Xetra: A0DK6K - news) said British Gas Residential profits for the second half of 2012 are expected to be around 15pc lower than for the same period of 2011, assuming normal weather conditions. The company estimates residential margins after tax in 2012 will be 5p in the pound - a similar level to last year and lower than the prior year.

Mr Bentley said: "Unfortunately, we cannot run our business sustainably on lower margins and still make the investments in jobs and future energy sources that Britain needs, especially if the country is to grow its way out of recession."

Higher utility bills could skew the Bank of England's inflation forecasts. The central bank has predicted a gradual slide in the consumer price index rate towards the end of the year and into 2013.

While inflation has fallen from 5.2pc in September last year to 2.5pc in August this year, many economists expect the rate to rise again as droughts in the US and poor summer weather in the UK are likely to mean higher food prices.

Paul Steedman of Friends of the Earth said: "Soaring gas prices are the main reason why fuel bills have rocketed in recent years. Unless our failing energy system is urgently overhauled, cash-strapped households will continue to pay a hefty price for our fossil fuel dependency.

"Ministers must abandon their plans for a reckless dash for gas, take rapid steps to make our homes and businesses more energy efficient, and harness the huge power potential from the wind, waves and sun."

British Gas last raised its tariffs in August 2011, when gas prices went up by 18pc and electricity prices by 16pc. Then in January 2012, it cut its electricity prices by 5pc.

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