Energy firm E.On cuts gas prices by 5.1%

gas pipeline Image copyright Getty Images
Image caption There has been criticism that prices have not been cut in line with falls in the wholesale cost of gas

E.On has announced a 5.1% reduction in its standard gas price for residential customers.

The company said the cut was the price equivalent of £32 off the average annual bill.

It is the first time in five months that any of the big six energy firms have cut their prices.

Last week both the regulator and the prime minister expressed concerns that prices were not being cut in line with falls in the wholesale cost of gas.

E.On also claimed it now has Britain's cheapest fixed energy tariff, with the launch of a one-year dual fuel product with an average price of £783.

'Right step'

The news was welcomed by the regulator, Ofgem.

"This is a step in the right direction and it is good to see some movement in energy prices for consumers," said Dermot Nolan, the chief executive of Ofgem.

"We have consistently called on suppliers to explain why retail prices are not falling and this price cut goes some way towards addressing that challenge."

But consumer groups said that prices should be reduced even further.

"With wholesale prices predicted to remain low this year, consumers should be seeing bill reductions of at least 10% - around £120 a year - on both gas and electricity," said Ann Robinson, the director of policy at price comparison site Uswitch.

The wholesale price of gas fell by 24% in the year to 20 January 2016, according to market information provider ICIS.

Cheaper bills

However E.On - which has 4.5 million customers in the UK - said it had to take account of other factors apart from wholesale prices.

According to the regulator, Ofgem, just 42% of a standard dual fuel bill depends on wholesale costs. Nearly a quarter - 23% - is the cost of distribution.

As a result Tony Cocker, the chief executive of E.On, defended the price cut of 5.1%.

"The underlying position is that whilst the price we pay for our customers' energy has fallen, we also have to take account of managing the various other risks in the market which can change, and the fact that many of the other costs that we don't control - but do have to bear - have increased or may increase."

Analysis: John Moylan, Industry Correspondent

"Deliberate intimidation". That was how one industry insider described to me the growing clamour for price cuts in recent days.

For the industry argues the case for cuts is not as clean cut as it seems.

Yes wholesale prices have dropped.

But the temperatures in December were the warmest on record. Households used less energy, biting into suppliers' profits.

And it's argued that some other non-energy costs are rising - for example the suppliers are currently trying to estimate the huge cost of rolling out smart meters.

But there's also growing anxiety amongst some the industry over how to justify the gap between std gas and electricity tariffs - which 70% of households are on - and the plethora of cheaper fixed price deals.

The move comes after the industry regulator Ofgem, politicians and poverty campaigners expressed concern that large energy companies were not cutting prices despite a sharp fall in the price of crude oil and gas.

Dermot Nolan, chief executive of Ofgem, said last week that domestic gas and electricity prices should be cheaper "for the vast majority of people".

The last time one of the big six firms cut prices was in August, when British Gas reduced them by 5%.

An ongoing investigation by the Competition and Markets Authority (CMA) has been examining the energy market for 18 months.

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