British Gas Offer

Dont know the specifics but generally speaking here goes.

British gas approach an oil and gas broker for an 'option' price. In this case the option would say something like, all prices above 'x' will be repaid (to british gas) for a ,say, 4 year period. For this BG will pay a premium, normally upfront, price determined by how close the price is to the spot price, how long the option lasts (3 to 4 years is a LONG time), and the volatility over the spot gas price. (If gas prices have a recent history of being volatile then the option price will be higher) So BG splash out a few million and need to recoup it from you. There are 2 ways to do this.

1. Either you pay slightly more than the current rate quarterly for the time period or

My guess.. BG buys calls .. sells puts for net zero and offers you a fixed price.

Nothing wrong unless prices fall substantially. (Simelar to fixed price mortgages)

If you sign up to the deal and then within the 3yrs decide to cancel or move suppliers they charge you £50 so be aware.

Peter

I signed up to a similar offer in Nov 2004. My prices were locked from April

Look at

or

Adam