Question 32

Phoenix Natural Gas has come under fire for increasing its prices for the second time in four months.

The company said its tariff will rise by 17% and blamed the soaring price of wholesale gas for the increase.

It comes on top of a 30% rise announced in September, prompting a call for the gas regulator, Ofreg, to take action.

Ofreg said it was not surprised by the rise but the General Consumer Council said it was "appalling" and a "severe blow" to customers.

The price rise will come into affect on 23 January and apply to more than 90,000 Phoenix Natural Gas customers in Northern Ireland.

Peter Dixon, Chief Executive of Phoenix Natural Gas, said the company was experiencing record high wholesale gas costs.

But he said the company realised it would be unwelcome news for customers.

"Since our last tariff review in October, gas costs have continued to rise significantly. For example, wholesale gas costs in December were more than double those of twelve months earlier," he said.

The second rise means an average annual bill will soar by 52%, or £200, in four months.

Source: BBC News 19^th January 2006 (adapted)

Questions Is demand for Phoenix Gas likely to be inelastic? If prices have risen by 17% and demand is inelastic, what is likely to happen to consumption? How much was the average annual bill last year and now, this year?