Simpler energy bills won't mean lower prices
As E.ON simplifies its tariffs, Cliff D'Arcy explains why easier bills could actually cause gas and electricity prices to rise.
E.ON has overhauled its tariffs by scrapping almost all of its existing energy deals, to be replaced by five new tariffs. As part of this relaunch, E.ON will offer cash loyalty rewards to all its customers.
Here are E.ON's new tariffs, all of which come with a single unit rate and a basic standing charge:
- E.ON EnergyPlan: E.ON's standard plan, a rolling contract with no cancellation fee.
- E.ON Energy Discount: A one-year contract costing 3% less than E.ON's EnergyPlan, with a £10 cancellation fee.
- E.ON Energy Fixed 1 Year: A fixed-price tariff for 12 months (£10 cancellation fee).
- E.ON Energy Fixed 2 Year: A fixed-price tariff for 24 months (£20 cancellation fee).
- E.ON Age UK Energy Fixed 1 Year: E.ON's cheapest fixed-price tariff for one year, with no cancellation fee, exclusively for the over-60s.
Existing E.ON customers do not have to switch to one of these new tariffs, although it may be in their interest to do so.
E.ON's yearly cash discounts off bills are £10 after one year's custom, £15 after two years and £20 after three or more years, which can be swapped for Tesco Clubcard points. Also, it will continue to offer yearly discounts for online account management (£10) and to dual-fuel customers (another £10).
Big deal?
Although E.ON's simpler range was welcomed by some consumer groups, I'm not so sure. To me, energy privatisation since 1990 has proved to be a 'failed market', thanks to upwards-only pricing and excessive profiteering by the big six energy providers.
Of course, simplifying a range of tariffs will not, in itself, lead to lower prices for existing consumers. Indeed, any wily marketing department worth its salt would use this re-pricing exercise as an opportunity to sneak up prices across the board, rather than lowering them and losing revenue.
For me, the sole advantage to E.ON's tariff shuffling is that it is now easier for its customers to compare its energy prices with the wider market, before switching to save money.
Furthermore, energy regulator Ofgem has previously warned the big six to overhaul their tariffs or face the first price controls in a decade. Though Ofgem made this threat in February, it took seven months for the first of the big six to give in to regulatory pressure by simplifying prices. No doubt the other five big players will drag their feet before following suit in their own good time.
The power of the big six
The UK market for domestic gas and electricity supplies is dominated by these half-dozen big players, collectively known as the big six (listed from largest to smallest):
- British Gas (includes Scottish Gas)
- SSE (Scottish & Southern Energy)
- npower (also German-owned)
- EDF (Électricité de France)
- E.ON (German-owned)
- Scottish Power (Spanish-owned)
With 52.3 million customers and a 99% market share between them, the big six effectively controls the UK's domestic energy supply.
Last month, MPs were warned that their near-complete control of the market means that they can squeeze out smaller competitors. In economics, this market dominance is known as a 'complex oligopoly'. This causes UK energy prices to be considerably higher than they would be in a properly competitive, open and transparent market.
What's more, consumer bodies have repeatedly accused these companies of using 'confusion marketing'. This involves deliberately making bills and tariffs baffling in order to make it difficult for consumers to compare prices.
After giving evidence to the Commons Select Committee a month ago, Stephen Fitzpatrick of independent supplier Ovo Energy was quoted as saying: "The fact that you can have two houses next to each other with one paying 25% more than the other for their gas and electricity is one of the reasons that customers don’t trust energy companies."
Get ready for winter price hikes
Regrettably, energy bills have doubled in the past decade and now average over £1,250 a year for a typical household, or more than £100 a month. Alas, our bills are likely to keep creeping up this winter as the big six push up their prices to take advantage of peak energy usage during the chilly months ahead.
Despite wholesale energy prices falling earlier this year, SSE announced price hikes in August, with its bills rising by an average of 9% from 15 October. However, E.ON has promised not to raise prices before the end of this year, so any increases it makes will not take effect until 2013.
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For those of you that have read my previous comments you will know that I am an expert on the Utility Industry (I regularly meet and advise all the Energy ministers, DECC officials, Alistair Buchanan and other Ofgem staff, et al)... You will also know that I am known for debunking the Big 6 and arguing against their dominance of the markets. But... There is so much nonsense being spouted here I feel I must intervene: Firstly to those of you that think that because a price of something goes up that it automatically means profiteering... I was going to write 'think again' but I realise what I actually mean to say is 'think'. It is now EU law that energy markets across europe must be linked. This means that was world energy prices rise, our prices will rise too. FACT As the energy companies all buy from these markets that means that their prices rise too... FACT The question is are energy prices rising? and Are they rising by as much as the Big 6 are putting their prices up by? and If not, are there other elements that are increasing prices? The answers are Yes, No and Yes... Wholesale prices along the trading curve have increased slightly. But not by much. So what makes the difference? In the gas market it is simple - The Big 6 are looking to make a reasonable profit. The domestic gas market has for many years been losing the five of the Big 6 money (Brit Gas is the exception). Now they want to make a profit. My calculation is that the average profit is around 4%. Compare that profit margin to other retailers (Apple, Samsung, Barclays, Tesco, Marks and Spenser, John Lewis etc) and the interest rates that could be gained by investing in other markets and you will find it is not unreasonable.... In the electricity market - traditionally retail margins are much greater (thats why the Big 6 always want a duel fuel supply). Unfortunately the government is imposing LOADS of new carbon, environmental and renewable taxes, levies and charges on electricity suppliers. Dig around and you will find douzens of papers written on the subject (some by yours truely). The truth is that the Big 6 all have their snouts in the trough over this... EdF wants subsidies for its Nuclear Generation, NPower wants CCS for its coal fired powerstations, eON wants money for its windfarms and so on... The Big 6 is therefore unwilling to tell you that the majority of the increases you are seeing in your bills is to pay for this low carbon generation. DECC wants its windmills etc as Ministers always get a bump in profile and public perception when pictured cutting the ribbon on something 'green'. Plus they dont want environmentalist critism over cheap but dirty fossil fuel....but to avoid this the annual bill is £34bn. Unfortunately this policy is failing because: a) Our energy intensive industry is moving abroad. We now import 1/3 of all our plate glass from China where it is produced using around 20% more carbon. This carbon is not counted towards the UK carbon output so ministers claim this is a success even though it costs jobs and the planet. b) We now burn more coal today than we did 5 years ago. Why? Because gas CCGTs which produce around 50% less carbon are seen as being dirty and are therefore not being built. Instead the government is subsidising the building of huge wind farms in the North Sea. These are expensive and cannot replace the powerstations as sometimes when the wind is low we need the existing powerstations to operate. So effectively you get to pay for both!!! c) The government is encouraging the electrification of heat and transport by mandating the installation of electric heating and subsidising electric cars (something else we have to pay for). Unfortunately electric heating and cars are not efficient and the extra electricity to fuel them comes from fossil sources. and lastly... d) China, EVERY WEEK, produces an increase in carbon output equal to the levels we are trying save over the next ten years (at a cost of £34bn)... People I know this sounds crazy... but the truth often is!!!
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t would appear i have got my wish with legislation coming to make energy suppliers charge at best tariff available. it may not reduce prices but it will stop suppliers offering special deals to new customers which fall away after 12 months.
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As a distrubtor for Uk's smaller company i'm constanlty bemused reading about the big six who waste millions on advertising & hike up rates ...when i ask people would they like to save money.. good old british public often say "I'm fine thanks don't need too...!" tomorrow many will be paniking not my customers.
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25 October 2012