E.On to Hike Bills Following Price Cap Increase

E.On has become the first energy giant to hike its prices following the raising of the government’s price cap last week.

Market regulator Ofgem announced a £117 increase to the price cap, raising the maximum amount energy firms can charge customers on standard variable and default tariffs to £1,254 from £1,137, for a dual-fuel household with typical use. The adjustment, on a cap that was introduced just at the beginning of the year, will come into effect 1 April and is expected to raise the bills of the 54% of British households on standard variable or default energy tariffs.

E.On has already responded to the increase by pushing up prices by 10% for the 1.8 million of its customers on standard variable and default tariffs.

“Over the coming weeks we'll be writing to affected customers explaining what the changes will mean for them and encouraging them to choose the best tariff for their needs," an E.On spokeswoman said.

Other members of the Big Six, the large suppliers which enjoy a 75% share of the domestic energy market, are expected to follow suit. All have set their standard variable tariffs at, or very close to, the current level of the cap:

Suppliers must notify customers of any price increase at least 30 days in advance, so announcements from other energy companies are expected this month.

When it was introduced in January, the energy price cap was expected to trim an average of £76, and as much as £120, from the bills of the 11 million households on expensive default and standard variable tariffs, saving Britons a collective £1 billion a year.

While those savings may have evaporated with the adjustment, Ofgem claimed that the cap, even at its elevated level, has made household energy bills £75 to £100 cheaper than they would otherwise be.

The regulator defended the raising of the ceiling, saying it reflected the increased wholesale energy prices faced by suppliers, following a global hike in oil prices and increased gas demand during last year’s harsh winter. 63% of the £117 jump in the price cap was attributed to inflated wholesale prices.

Suppliers have also faced higher network costs for the transporting of electricity and gas to homes and higher policy costs associated with environmental and social schemes.

Ofgem chief executive Dermot Nolan defended the increase of the cap: "We can assure these customers that they remain protected from being overcharged for their energy and that these increases are only due to actual rises in energy costs, rather than excess charges from supplier profiteering.”

Ofgem told customers that when wholesale energy prices fall, those savings would be passed onto them.

“When costs fall consumers’ bills are cut as suppliers are prevented from keeping prices higher for longer than necessary,” the regulator said in a price release.

While the price cap was expected to protect customers from the so-called loyalty penalty, the premium paid by customers who don’t switch and stick with their supplier long after any fixed rate deal has expired, even at the lower level it was higher than 60% of gas and electricity tariffs on the market. Consumer advocates encouraged consumers not to be complacent and think price cap was getting them the best deal possible but rather to shop around for cheaper tariffs—calls which will only increase following the raising of the cap.

The cap has been controversial among suppliers: at the level in effect from January, it was expected to shave 5% off their profits. And at the beginning of the month Big Six supplier Npower announced it was cutting 900 jobs, 15% of its UK workforce, following losses it partly attributed to the price cap.

Lauren Smith

Lauren Smith has worked as a journalist and copywriter for most of the last decade, covering technology, energy, and consumer rights, in the US and UK.

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