Two big six suppliers hike energy bills following Ofgem's price cap rise
Big six suppliers E.on and EDF have increased energy prices to the maximum allowed under the new cap on standard variable tariffs – hitting customers with an average 10.3% rise from Monday 1 April.
The £117/year price hike comes just days after regulator Ofgem announced it was increasing the level of the price cap on standard and default energy tariffs from 1 April.
E.on increased prices for about 1.8 million customers on Monday and EDF has now followed suit for about 1.3 million customers, on standard tariffs – hiking to the new maximum rates allowed under the cap.
For a household with typical energy use, this means a £117/yr increase to their energy bill from 1 April, to £1,254/yr. Yet this ISN'T the maximum anyone will pay, as the price cap places a maximum charge on the rate you pay for gas and electricity – use more and you'll pay more, use less and your cap will be lower.
MoneySavingExpert.com founder Martin Lewis, commenting last week on Ofgem's hike, predicted that "most of the big six providers [would] snuggle their prices right against the cap".
He said it would "feel like a damp squib to most people", as the new level was actually £34 MORE than firms were charging in December, before the cap launched.
Why are prices rising?
Ofgem blamed the rise to the price cap level on higher wholesale energy costs (what suppliers pay for gas and electricity). The regulator said these costs were about 17% higher than they were when it set the original cap level in November.
Last year, higher oil prices along with other factors, such as the higher demand for gas from the 'Beast from the East' weather event, led to a rise in wholesale gas prices.
Other costs, including network costs for transporting electricity and gas to homes and costs associated with environmental/green energy schemes and policy costs, have also risen and contributed to the increase in the level of the caps.
So how does the price cap work?
The price cap limits the maximum amount suppliers can charge for each unit of gas and electricity you use, and sets a maximum daily standing charge (what you pay simply to have your home connected to the grid).
This means someone who uses a 'typical' amount of energy on a standard or default tariff currently pays a maximum of £1,137/yr on average, but that is set to rise to £1,254/yr in April. However if you use more, your maximum is higher, use less and it's lower.
The price cap is reviewed twice a year, in April and October, and is set to remain in place until 2020, after which Ofgem will recommend on an annual basis if it should continue, up to 2023.
What can I do?
With most of the big suppliers expected to follow E.on and up their standard tariff rates, the best way to save on your energy is to switch provider.
If you're on a standard or default tariff, you're free to switch away at any time. Suppliers can't charge you exit fees if you're on this type of tariff – and savings of well over £250/yr are possible.
You can use our Cheap Energy Club to compare the whole of the market.
What do the suppliers say?
An E.on spokesperson said: "Ofgem's energy market price cap review set out that price cap levels would increase, driven by rising wholesale and other costs. In line with that, we'll be making changes to our standard variable tariff prices from 1st April and expect to see similar movements across the energy industry.
"Prices will not change for existing customers until then. 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."
And a spokesperson for EDF said: "As a responsible and long-term business, it is important that we reflect the costs we’re facing. These changes for standard variable tariffs will not come into effect until 1 April and we will write to customers before then, highlighting the other tariffs available that they can switch to.”
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