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:

1. E.ON EnergyPlan: E.ON's standard plan, a rolling contract with no cancellation fee.
2. E.ON Energy Discount: A one-year contract costing 3% less than E.ON's EnergyPlan, with a £10 cancellation fee.
3. E.ON Energy Fixed 1 Year: A fixed-price tariff for 12 months (£10 cancellation fee).
4. E.ON Energy Fixed 2 Year: A fixed-price tariff for 24 months (£20 cancellation fee).
5. 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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