Eon acts first to cut consumer gas bills

Eon said on Tuesday that it will cut its standard gas tariff by 3.5 per cent with immediate effect, making it the first big six energy supplier to act following cross-party political pressure to pass on falling wholesale costs.

At the same time that it cuts £24 per year from its standard gas tariff Eon will launch a one-year fixed rate product which it says is the lowest on the market, despite increasing political uncertainty facing UK energy companies.

The sector is already undergoing a full investigation by the Competition and Market’s Authority but has emerged as a key political focal point in the run up to May’s general election.

Late last week chancellor George Osborne said it is “vital” that the historic lows on the global oil markets be passed on to consumers, saying the Treasury would investigate whether action should be taken against energy companies.

The warning was echoed by Labour party leader Ed Miliband who over the weekend called for fast-track legislation to enable Ofgem to force suppliers to cut their bills.

Following Labour’s 2013 pledge to freeze prices if elected, energy companies are understood to be wary about dropping prices to a level which may prove unsustainable.

But Eon said it is willing to take the risk.

“Given the possibility of a price freeze we are undoubtedly taking a risk today but we always put our customers first,” said Eon UK chief executive Tony Cocker in a statement.

“We have made this decision knowing that our ability to recover costs, should the market outlook change in the months or years ahead, may be limited but we urge all political parties to recognise the realities of the energy industry and help us to continue to do the best for all of our customers,” he added.

Analysts at RBC Capital said although Eon has taken the ‘first-move advantage’ other companies which are not fully hedged should be able to follow suit.

The exception to this could prove to be SSE, which the analysts say is “unlikely” to move given its fully hedged position and fixed tariff offerings which were designed to mitigate the risk of Labour’s price freeze pledge.

“Centrica, with a largest gas customer base in the UK, has the most to lose from customer switching but has more wiggle room than SSE,” the analyst note said.

Energy companies typically buy from the wholesale market by as much as two years in advance meaning the steady falls in wholesale prices over the past year may only unwind by the second quarter, according to Citigroup analysis.

Miliband’s proposal would see cuts imposed before the May election, but is not expected to be successful in Wednesday’s parliamentary vote.