Why you’re paying too much for gas

If you think your gas bills could be lower – you’re probably right. UK gas bills are at a 10-year high but the cost energy firms have to pay is falling fast.

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New research from moneysupermarket.com shows that customers are still paying out record high gas bills, at an average of £779 a year.

Despite this, the actual cost of gas to the providers has fallen by 60% since it peaked in the middle of 2008. However, providers are starting to cut bills and pass these savings onto the consumers.

British Gas cut gas prices for its standard rate customers by 7% around a month ago and Scottish & Southern Energy (SSE) recently announced a cut of 4% in the price of gas to its dual fuel customers and up to 7% less for people just signed up for its gas.

This week, E.ON has continued the trend, promising cuts of 6% for gas customers.

Yet, if domestic bills had been cut in line with wholesale price falls, UK customers would have been an average of £478 a year better off - a shockingly high figure. Scott Byrom, moneysupermarket.com’s utilities expert, explained: “Unfortunately this latest move does little to quash talk of providers not passing on savings in line with wholesale gas price falls.

“Gas bills are at a 10-year high so I would advise bill payers not to hold their breath for a better deal – they may not see the substantial price cuts they hope for any time soon, so shopping around for the best energy deal for consumption and region is crucial.”

Energy firms argue that wholesale costs aren’t the only thing that affects retail pricing and other things such as transportation costs and investment in alternative energy sources, have to be factored in. Nevertheless the industry is coming under increasing pressure to pass on price reductions to customers.

In the meantime there are steps you can take to make savings. The easiest way to bring down your bills is to switch to a cheaper provider.

If you need more convincing that it’s time to cut what you pay, here’s a table charting the rise and rise of the average gas bill.

 2000 2001  2002  2003  2004  2005  2006  2007  2008  2009  2010 
 £295  £293  £310  £320  £333  £386  £474  £552  £570  £717  £779

Figures sourced from DECC - Quarterly energy prices: Dec 2009

Scott called on unhappy gas customers to vote with their feet and switch to a cheaper provider to save money.

What about the cuts?

The cuts are a welcome development for customers, especially following one of the coldest winters in 30 years.

However, many customers will feel the fall in price does not go far enough, making a difference of just a few pounds a month for most customers. 

Scott said: "E.ON is the third energy giant to announce a small price cut this year. It is a step in the right direction for bill payers but it still only means a drop of £3.50 a month on gas bills – or £42 a year. This move comes hot on the heels of SSE’s gas price cut of £2.50 a month announced last week.”

How can I cut my bills?

If you’re shocked by the high profit margins energy companies are making through gas then it’s time to act.

Most people buy their gas and electricity from the same provider using a dual fuel tariff, but the difference in costs between standard deals and providers’ best buys can be huge.

If you want to pay as little as possible for gas and electricity, you should switch to a dual fuel tariff and pay monthly.

For example, a customer on Scottish Power’s average standard tariff will pay an average of £1,361.95 a year for their gas and electricity.

However, they could save an incredible £472.95 by moving to the cheapest average tariff – the average annual bill of First Utility’s iSave tariff is just £889.

Having said that, there has been some speculation that not everyone is being accepted by First Utility. Fortunately, British Gas is a close second – it’s WebSaver 6 tariff is just £10 more a year, at £899.04.

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Going online

One reason energy firms are so keen to get their customers to opt for an online tariff is that it encourages them to read their own meters and input the figures.

Being aware of how much energy you use helps you cut your home’s consumption, which is good for the planet and good for your pocket.

Some providers even hand out electricity usage monitors, which show you how much electricity you’re using at any one time and even work out what that’s costing you.

Customers using British Gas’ EnergySmart tariff are given one of these meters. The energy giant estimates that knowing how much gas and electricity you use helps you cut back, meaning your bills fall by an average of £110 a year.

Right for you

Although the current cheapest gas and electricity provider right now is First Utility, the best energy deal for you depends on how much you use and where you are in the country.

Use our gas and electricity comparison tool to find out just how much money you could save.

This article was updated March 8, 2010, following E.ON's price cut.

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