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E.ON expects British energy price cap cut in October

By Susanna Twidale
FILE PHOTO: E.ON headquarters in Essen

By Susanna Twidale

LONDON (Reuters) - Britain is likely to cut its cap on household energy prices by around 5.6% or 70 pounds a year from October, E.ON UK said on Monday, meaning lower power bills for around 11 million Britons.

The cap on default electricity and gas bills - a flagship policy of British Prime Minister Theresa May to end what she called "rip-off" prices - came into force in January to set a maximum price suppliers can charge consumers on certain tariffs.

A steady decline in British wholesale gas prices this year has lead to expectations the cap would be lowered.

"A range of external factors including plentiful energy supplies and mild weather conditions have driven a falling market in recent months and because of this we expect to see lower prices," Michael Lewis, CEO of E.ON UK, said in a statement on the company's website.

It is the British arm of Germany's E.ON <EONGn.DE>.

Energy regulator Ofgem can review the cap twice a year to take into account any changes in wholesale prices and costs such as network fees, or policy costs such as environmental levies.

It is set to announce the new cap level in August to take effect in October.

(For a graphic on 'What costs make up a British duel fuel energy bill?', click

The cap is currently set at 1,254 pounds a year for average gas and electricity use.

All of Britain's big six energy providers have set their standard variable energy prices at the maximum allowed under the cap, and would therefore have to lower their bills for a total of around 11 million customers, if the limit is reduced.

Britain's big six energy suppliers are E.ON UK, Centrica's <CNA.L> British Gas, Iberdrola's <IBE.MC> Scottish Power, Innogy's <IGY.DE> npower, SSE <SSE> and EDF's <EDF.PA> EDF Energy.

The day-ahead gas contract <TRGBNBPD1> averaged around 40 pence per therm in the first half of 2019, according to Refinitiv Eikon data, compared with around 56 pence per therm in 2018 when freezing weather caused prices to spike.

Wholesale energy costs make up almost 40% of a British dual-fuel energy bill.

(Reporting By Susanna Twidale; editing by David Evans and Susan Fenton)