New Year misery for households
Britain’s fourth largest energy supplier, npower, has announced that it is putting up prices from tomorrow, 5th January, 2008. The increases – an average of 17.2% or £92 for gas and 12.7% or £48 for electricity – will hit its standard tariffs, affecting almost 4.9 million customer accounts. It will add an extra £139 on to the average standard dual fuel customer’s household energy bill, which is now set to rise from £908 to £1,047.The New Year price hike wipes out the £121 (12%) price cut that npower made last year. It means that customers only enjoyed lower prices for 8 months, mainly during the summer period when energy usage is lower. Prior to this, in 2006, npower increased prices by £358 or 53%.
The price rise blow comes only a month after npower put up the prices on its wholesale tracker plan by 17% for gas and 13% for electricity and by 17% on its new online energy plan. However, customers will be dismayed as, at its last full year results, RWE npower reported bumper profits of Euro 658 million. It has also spent just over £12 million on advertising this year - only British Gas and E.ON spent more.
Suppliers will, however, find it difficult to justify sweeping price rises to customers whose perception is that energy companies are slow to pass on price cuts, but quick to put prices up. Energy prices soared across the board by £277 (38%) on average between 1st January 2006 and 1st January 2007, but prices were only cut by £101 during 2007, despite a 56% decrease in wholesale energy prices. While 15 price rises in 2006 added £4.8 billion to consumer energy bills, price cuts in 2007 only shaved off £1.7 billion.
Today’s move gives other providers the green light to put prices up too and household energy bills are now expected to top £1,000 again in 2008. Suppliers will follow npower’s lead and point to increased wholesale energy costs, as well as an increase in other costs, such as distribution, transmission, the Renewables Obligation and the introduction of the Carbon Emissions Reduction Target (CERT). These additional costs alone could be responsible for an additional £40 being added to household energy bills in 2008.
Tim Wolfenden, Head of Home Services at uSwitch.com, comments: “The prospect of being able to raise prices has had suppliers champing at the bit, so it was always just a matter of time before one of them made the move. By announcing price increases today, npower has given the other suppliers the green flag they’ve been waiting for. The coast is now clear for a general price hike and energy bills can be expected to top £1,000 again - consumers are going to be in for a rough ride this year.
“The good news is that npower has softened the blow for its pre-payment customers. But, by being the first supplier to put prices up, npower is skating on very thin ice. Its reputation for customer service has taken a real nose dive over the last year – our latest independent Customer Satisfaction Report shows that consumers now rate it only marginally better than British Gas, which is not a good place to be. Today’s move will simply alienate customers further.
“The price increase kicks-in tomorrow on 5th January. Customers have to switch now to reduce the impact of higher energy bills on their household. By not switching, consumers could waste over £2.3 billion in total or £334 each. Those who have never switched before and are sitting on an uncompetitive standard plan have the most to gain and should switch straight away. The only consumers who can afford to sit back and wait to see how this round of price increases plays out are those who are already on a competitive online deal.”