April Foolishness: Why every Big Six supplier is hiking prices, and we’re cutting ours
1st April 2019
No less than 23 energy suppliers have raised their variable tariff prices on April 1st. We regret to inform you that we are one of them...
We're actually cutting our prices.
Effective from May 1st, customers on our standard Flexible Octopus tariff will see a price cut of around £30 per year (this is for an average-consumption home, spending about £88 per month). That’s a 2% drop for electricity, and a 4% drop for gas.
Things aren’t quite so rosy for customers of the Big Six.
Here are the Big Six’s new prices for a standard dual fuel customer, versus what they were at the start of February. (We’ve chucked ours in for comparison, too).
Why are other suppliers hiking their variable tariff prices?
The Big Six are notorious for rolling millions of customers onto majorly overpriced ‘Standard Variable Tariffs’ after their fixed contracts end – we call it ‘Tease and Squeeze’ pricing, and we campaigned against it ‘til the government cracked down on it with the introduction of the energy price cap in January 2019.
This price cap prevents suppliers from charging customers beyond a certain level for their energy. Ofgem review the cap twice a year based on changes in the wholesale market. A few months ago, it was announced that the maximum capped level would be increasing by £117 on April 1st.
And like clockwork, all the Big Six announced price rises.
These hikes are now coming into force, affecting 11 million customers.
So, why are we zagging while they zig?
Simply, because the wholesale cost of electricity has dropped. A variable tariff is designed to fluctuate based on wholesale prices. Now that we’ll be paying less for energy, you should be paying less too.
Wholesale prices have now dropped around 24% since last October.
If the wholesale price of energy has dropped 24%, why hasn’t Flexible Octopus gone down that much?
There are a few reasons for this.
Firstly, the wholesale cost of energy reached its highest level in October, and we didn't pass 100% of this on, instead, absorbing some of these astronomical costs ourselves to reduce the sting for our customers.
Second, only about 40% of your bill is made up of wholesale costs. The rest is made up of things like metering, billing, and taxes (some of which have increased since we last changed our prices). All of this means that a 24% reduction in wholesale costs is only the equivalent of about 9.6% in your final energy prices.
Finally, we buy variable tariff energy a long way in advance, through a fairly complex hedging process. The energy we’re selling today, we started buying in August 2018, and then bought some in September, some in October, etc.
This creates more stable prices, but also means that it’s a while before we benefit from falling wholesale costs, and before we can pass the savings on to you.
We’re trying to bring transparency to energy.
Too often, energy suppliers put tariffs up citing increased wholesale costs, but neglect to pass savings on to customers when these wholesale prices drop again.
But, we’re really determined to show that companies like ours will actually ensure variable tariffs vary, and that on Flexible Octopus, we pass on wholesale cost drops just as readily we do cost increases.
It’s been about 3 months since wholesale costs started to fall, and as we’re now benefiting from that, we’re passing it on to you.
If they keep falling, we’ll keep cutting.
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