By Mark McLaughlin

SCOTTISH GAS has finally announced price cuts for residential gas and electricity customers following unprecedented price rises in recent months.

The move has kicked off a price war among rival firms, with several others announcing similar cuts.

Scottish Hydro-Electric announced its decision to cut prices in a letter to customers last week, although Scottish Gas has pipped them to the post by being the first to confirm prices and dates.

Scottish Gas said the average annual dual fuel bill will fall by £187 to £949.

The average price of wholesale gas has fallen by around 50% in the last six months, meaning Scottish Gas has not decided to pass on the bulk of savings to customers.

The company said last night its new prices are fair.

A spokesperson said, “While the wholesale price has been the biggest significant influence on prices—equating to around 60% of the end price customers pay—the rest of the price is made up of transport, technical costs and a small percentage of profit.

“Ofgem’s latest figures show that wholesale gas prices have increased by 167% over the last three years, whereas customers’ bills have gone up 52%.

“Scottish Gas didn’t pass through the full increase in energy prices, as evidenced by our losses of £218m through to June last year.

“Therefore it’s not reasonable to measure our price cut against the headline falls in wholesale prices.

“Furthermore there is a lag in pricing as much of the gas that customers are using now was bought some time ago when prices were still high.

“We’ll keep a very close eye on what happens to wholesale prices as we go through 2007 and are not ruling out any further moves on price.”

Hydro-Electric claims its average gas price is £960 per annum, before it has confirmed cuts.

It has now pledged to undercut Scottish Gas when it announces price cut figures in the next few days, and has further promised to implement the cuts before March 12 to beat its rival to the finish line.

However, Stevie Philp, head of operations at Scottish Gas, took advantage of the company’s position as the cheapest energy supplier in Scotland.

He said, “We are taking a lead in passing on the benefits of falling wholesale gas prices.

“As a result of this move our customers will be better off and for many vulnerable households that struggle to balance their bills, our social tariff will remove the burden of not being able to access our cheapest prices, typically direct debit, irrespective of their method of payment.”

Sam Laidlaw, chief executive of Scottish Gas parent firm Centrica, said the cuts are down to new gas contracts, underpinned by the construction of new undersea pipelines.