Between January 2005 and January 2006, the average UK consumer saw their gas and electricity bills rise by 8% and 11% respectively. These increases relate directly to steep rises in the wholesale price of gas. The reasons for this include the limited nature of gas storage and pipeline connections to Europe and the fact that North Sea reserves are declining faster than expected. Gas-fired power stations account for around 40% of electricity generated in the UK, so electricity prices have also risen to reflect the rise in gas prices.

Since gas and electricity costs make up a significant proportion of household bills as well as the operating costs of businesses, rising energy costs are a major issue for everyone. But for vulnerable groups in particular they can be a source of real hardship.

What has happened to our pricing?

Since the beginning of 2006, Powergen, along with the other major gas and electricity supply companies, has raised its prices. From 10 March, most of our customers experienced prices rises of 24.4% for gas and 18.4% for electricity. Exceptions include the 'StayWarm' tariff, where the price only changes on renewal, our various capped schemes and the 'EnergyOnline' plan. Taking all these together, some 10% of our domestic customers are protected from the immediate impact of the price rises. With wholesale gas prices rising by 85%, and electricity by over 70% in 2005 the challenge in the course of the year was how to manage this to protect business value while minimising the impact on our customers. Although wholesale prices started to increase earlier than last year, by previously securing future supplies at lower prices in the wholesale gas markets, we were able to postpone passing these on to customers.

We have coupled this with increased efforts to help people improve the energy efficiency of their homes, including the launch of an energy efficiency audit available online and via our free helpline. On completing the audit, customers receive a report detailing the improvements that can be made, which can save them energy and money.

We also continue to provide extra support for customers facing fuel poverty, and those who are particularly vulnerable. This includes offering discounted cavity wall insulation and free energy-saving light bulbs for all residential customers, as well as free benefit entitlement checks, so that customers can be sure they are claiming all the state benefits available to them. We have also increased the rebate for the special Age Concern tariff, which helps over 185,000 of our older customers. There is more on fuel poverty here.

Our range of fixed-price products has also helped protect over 50% of our business customers from the immediate impact of the recent price rises. Higher energy costs for business customers ultimately translate into higher prices for the goods and services they supply, as cost increases are passed on, so it is in everyone's interests to keep these as low as possible. We're also developing alternative product structures to enable small and large businesses to better risk manage their energy costs.

In the winter of 2005/06, we developed a new product to help businesses manage their risk in the event of a Gas Supply Emergency. Customers who are able to stop using gas in response to the warning of a potential emergency, or if the market price reaches a pre-agreed level, can sell the gas they would otherwise have used. In this way, we are able to work with our customers to help minimise the financial impact on their business.