Energy giant E.ON has bowed to pressure from the public and from the energy regulator Ofgem and announced that it will be cutting prices on its standard tariff for gas by 5.1%.
Pressure has been mounting on energy providers and the Big Six in particular for a while now but most recently, as wholesale prices for gas have been plummeting, the arguments in favour of prices dropping for consumers have been gaining strength.
And now, after Ofgem’s CEO came out declaring that in his opinion, the Big Six are “overcharging in many cases” it seems that the pressure has reached a tipping point and E.ON have now become the first (though hopefully not the last) of the six to announce a price cut.
E.ON have been praised for their move, mostly in the hope that it heralds the beginning of a trend to be followed by the other Big Six providers; British Gas, EDF, Npower, Scottish Power and SSE.
However, the severity of the cuts has been called into question. Joe Malowski, who runs an energy price comparison site, argued that while the cuts were a good thing, they have not gone far enough, at least not yet.
He said, in a statement addressed to the general energy consuming public: “if you’ve ever wondered why you might not be able to afford a holiday this year, one reason could be that, over the past two years, you have paid your energy supplier £500 more for energy than you needed to.”
According to his calculations, wholesale prices for gas have gone down by 45% over the last two years, and prices for electricity by 22%, with both falling by 32% and 13% respectively over the last year.
As such, he sees E.ON’s 5.1% cut as but a “small step in the right direction,” though admitted that they were nonetheless “welcome”.
E.ON’s cuts were indeed made somewhat reservedly, with CEO Tony Cocker claiming that the falling wholesale costs have not had quite as dramatic effect on the energy provider’s actual outgoings as it may have seemed, given the range of different complex and apparently unpredictable overheads that it faces.
Mr Cocker said: “the underlying position is that while the price we pay for our customers’ energy has fallen, we also have to take account of managing the various other risks in the market which can change, and the act that many of the other costs that we don’t control but do have to bear have increased or may increase.”
“Once you’ve built in various uncertainties and other factors,” he went on, “while the wholesale market movements may translate across to a dual fuel domestic bill for a drop in prices of under 10%, the inclusion of those other factors translates the percentage to the standard gas cut announced today.”
The cuts that E.ON have made mean, by their own calculations, that the average customer’s bill will fall by just over £30, to an average of annual cost of £1,047. At the same time as announcing the 5% cut to gas bills, they also announced the introduction of a special tariff for over 60s, rolled out in partnership with charity Age UK, as well as a standard one year fixed rate tariff at a cost of £783.