Utility Week

UTILITY Week 29th January 2016

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UTILITY WEEK | 29TH JANUARY - 4TH FEBRUARY 2016 | 21 Customers Analysis I t had to happen sometime. Finally, an energy company has responded to the political and media pressure to cut prices, with Eon announcing this week that its gas tariff will come down by 5.1 per cent. But will other big six suppliers follow suit? Some say that despite being the first mover, the company has not gone far enough. Its price cut equates to an average saving of £32 for standard variable dual fuel customers, taking an annual bill down to £1,057. Eon chief executive Tony Cocker says it was "the right thing to do" but is at pains to point out that wholesale costs are not the whole story. There are other costs "that we don't con- trol but do have to bear", he says, and these have risen. And there are various risks in the market that need to be factored in. When everything is toted up, this means a gas tariff reduction of just 5.1 per cent. If Eon was expecting a hero's welcome for its announcement, it will have been dis- appointed. The market's response has been muted. Citizens Advice, for example, com- mented: "The company should also help customers by cutting electricity bills." Meanwhile, at the time of going to press, the rest of the big six have yet to respond. It seems likely that at least some of them will announce similar cuts given the high profile comments by energy secretary Amber Rudd and others in recent weeks, calling on them to pass on savings as wholesale prices hit historic lows. Yet it is far from certain they will – market observers expected competi- tors to follow British Gas, which cut its prices last year in response to a call from govern- ment, but nothing happened. As the implication of Eon's price cut are felt across the market, the government and regulator will not be the only ones watch- ing closely. The Competition and Markets Authority (CMA) has just delayed the report- ing of its provisional remedies for the energy market until March. If several major suppli- ers have cut their prices by then, the CMA may be less inclined to recommend dras- tic market interventions, such as a cap on standard variable tariff. Watch this space. First cut of many? Eon has cut its standard gas tariff, but other suppliers are staying silent on whether they'll follow suit. Mathew Beech reports. Big six's grip on 'sticky' customers is loosening One reason the big six are slow to drop their prices is energy customers are "sticky" – they are reluctant to switch. But this is changing. Switching hit record levels in 2015, with around 3.8 mil- lion people changing their energy supplier, according to Energy UK, an increase of 17 per cent on 2014. As a result, independents are flourishing, since they tend to be the beneficiaries from high switching. There are now 34 suppliers in the market, and more competition means more pressure to be responsive to changes in wholesale prices – or so the theory goes. " " "Why wait? I don't know why the sec- tor hasn't moved to cut prices more. We don't understand why electricity hasn't gone down as well." Daniel Walker-Nolan, energy policy manager Citizens Advice "These low prices are what consumers deserve in view of the sharp falls seen in whole- sale gas prices over the past year, and should be supple- mented by cutting the prices of the standard tariffs also. Stephen Murray, energy expert at MoneySuper- Market "It looks as though a winter price war is well underway as suppliers battle it out to rule the roost in the best buy tables. But while the price of fixed deals is plunging, the cost of standard tariffs con- tinues to fall like a feather." Tom Lyon, energy expert at Uswitch.com "The biggest problem in this industry is that 70 per cent of the big six customers are on a standard variable tariff." Ed Kamm, UK MD, First Utility "These cuts are too modest. This fall in energy bills is tem- porary. Oil, gas and the rest will rise again and probably with a vengeance." David Hunter, energy industry analyst with Schneider Electric "This is a step in the right direction and it is good to see some movement in energy prices for consumers." Dermot Nolan, chief executive of Ofgem 125 100 75 50 22 0 GAS MARKET PRICES, 2012-16 Jan 2012 p/therm Jul 12 Jan 13 Jul 13 Jan 14 Jan 16 Jul 14 Source: Highcharts.com Jan 15 Jul 15

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