Don't be fooled by the latest energy cuts

26 January 2012

In the middle of January, all of the ‘Big Six’ energy providers cut either their gas or electricity prices by about 5%. Falling wholesale prices were cited as the reason tariffs were slashed. Consumer groups have applauded the energy giants’ decisions, saying it is a step in the right direction to regain consumer trust.

But is it really such great news, or is it just another marketing ploy?

Ok, let’s look a bit closer at the figures. Npower, EDF Energy and Scottish Power have all slashed their gas prices by 5% from 1, 7 and 27 February respectively. Scottish & Southern Energy (SSE) will also cut its gas prices - by 4.5% from 26 March - a bit less and customers will have to wait a bit longer for the price reduction to kick in.

Meanwhile, British Gas and E.ON have slashed their electricity prices. The former by 5% from 12 January and the latter by 6% from 27 February.

Yes, all cuts clearly but what energy companies would like us to forget is by how much they have increased prices over the last two years.

Let me give you a reminder.

The rises

Since the second quarter of 2010 (so less than two years ago), British Gas and Scottish Power have upped their gas and electricity prices on two different occasions, while npower, E.ON and EDF Energy have increased their gas bills twice and their electricity bills three times – that’s once every six months.

Only SSE customers have fared slightly better as the provider has increased its gas price twice but electricity only once. The increases ranged from 2% to 19% for gas, and from 5% to 16% for electricity (price changes based on average energy bills and based on uSwitch calculations).

Are you still with me?

To make it clearer, if you’d been a British Gas customer for the past 18 months with an average yearly gas bill of £800 and £400 for electricity, this is what would have happened: your gas bill would have increased to £1,009 – at least £200 more than you would have paid in spring 2010. Meanwhile, your electricity bill – with the latest reduction included – would have risen to £470, that’s £70 more.

So we’re actually experiencing price increases despite the well-publicised reductions. And the same goes regardless of which of the six you’re lucky enough (or unlucky depending on how you look at it) to deal with.

Timing is everything

Another clever way the companies try to avoid having to pass on the drop in wholesale prices (in other words, keep more of the profits) is by delaying the date the reductions come into effect, meaning some of the companies – including E.ON,

Scottish Power and SSE (the worst one by far with its 26 March date!) will avoid lowering prices for the winter months when bills are traditionally the highest. The providers blame this on the fact that they buy gas months ahead, so are still paying the higher price, but after overcharging customers for years the excuse is rather weak.

So will the latest moves by the Big Six regain customers’ trust? I sincerely hope not because as far as I see, it’s just a cheap marketing ploy to make them look good. It’s widely known that energy providers are quicker to pass on price increases than they are to pass on price cuts (even energy regulator Ofgem admits this in a report last March). Yes, any cuts are better than nothing.

But to applaud suppliers for passing on a reduction that rightly belongs to their customers is like praising your friend for paying back £8 of the tenner they borrowed last week. And who knows how long it will be until they put prices up yet again.

Johanna Gornitzki is the editor of Moneywise magazine

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