A lot of hot air

Last winter soaring natural gas and electricity bills were the big news story. In 2006 British households saw their average gas bill rise by more than 42% in a single year. The dramatic price increase was driven by several related factors.

• First, Russia's dispute with the Urkraine saw temporary supply restrictions in Europe, resulting in dramatic price increases overnight.
• Second, the UK's natural gas self sufficiency has ended as its North Sea reserves slowly run down. As a result, the UK now imports about 10% of its gas. However, the country was ill-prepared for this change in supply. Until a few months ago it had only one alternative supply source, an aging, low-capacity pipeline link to Belgium. Sky-rocketing Russian wholesale prices often discourage suppliers from using the link at full capacity thus inflating local gas prices.
• Finally, the wholesale gas market affects electricity bills as 39% of the UK's electricity is generated from gas.

Last year, to encourage loyalty, most gas utilities offered customers a range of capped price contracts. We decided not to sign up for one of these offers. The wholesale price of natural gas is expected to fall this year as a new pipeline from Norway comes on line and a new liquefied natural gas terminal opens for business.

However, for millions of households, the contracted cap period of their long term contracts came to an end this month. They're now locked into contracts with no discount. As a result, energy costs are soaring once again with some consumers experiencing increases of up to 70%. While our price was never capped, this month's gas bill was still staggering - in excess of £490. To say that this was shock is an understatement. Our last bill for a 90 day period was £30.50.

Keeping warm never cost so much!