More than 1.5m customers could be on fixed tariffs above price cap

As many as 1.55 million customers could be on fixed tariffs that are more expensive than the new price cap levels and will therefore see their energy bills rise as government subsidies are withdrawn, Utility Week can reveal.

Future Energy Associates says there are hundreds of fixed tariffs that will be above the new cap levels when they come into effect on Saturday (1 July), some of them by thousands of pounds.

In total, the energy data company said there are 430 fixed price tariffs that will be more expensive than the corresponding price cap as of 1 July.

Of these, 219 cost more than £3,000 per year on average for a typical household, 80 cost more than £4,000 and 13 cost more than £5,000.

Most of the main suppliers have at least one tariff in excess of £4,000, with notable exceptions including Eon Next and Shell Energy, whose most expensive tariffs are roughly £2,500 and £2,800 respectively. Ovo Energy accounts for seven of the 13 tariffs above £5,000 and also has the only tariff in excess of £6,000, coming in at around £6,200 per year.

Ovo Energy said last year it switched all customers with a fixed tariff higher than £2,500 down to the level of the government’s Energy Price Guarantee (EPG). It said these customers will continue to pay the same rates once the EPG subsidies are withdrawn.

Of the 430 tariffs that will be more expensive than the new price cap levels, 95 are due to come to an end within 49 days of the new price cap levels coming into effect, meaning all customers on the tariffs will be able to switch without incurring an exit fee. Future Energy Associates estimates there are around 700,000 customers on these tariffs.

The exit fees for the other tariffs vary significantly from zero all the way up to £300.

The price cap for a typical dual fuel customer paying by direct debit is due to fall by £1,206 on Saturday from £3,280 to £2,074. However, the typical energy bill will only fall by only £426 due the removal of subsidies provided under the EPG, which is simultaneously rising to £3,000. Meanwhile, the price caps for prepayment meter (PPM) and standard credit customers are due to fall from £3,325 to £2,077 and from £3,482 to £2,211 respectively.

Since the introduction the EPG in October, standard variable tariff (SVT) customers have received flat unit rate subsidies on gas and electricity at levels that are intended to cover the gap between Ofgem’s price cap and the EPG level of £2,500 for a typical household. Customers on fixed price tariffs above the EPG level have also received subsidies to make up the difference but limited to the subsidy rates for SVT customers.

However, the reduction of the price cap to below the EPG level means these subsidies will be removed for all customers, including those on fixed tariffs.

Commenting on the tariff data provided by Future Energy Associates, Simon Francis from the End Fuel Poverty Coalition, said: “Obviously it’s quite a shock to understand the full extent of the problem.”

When announcing the new price cap levels in May, Ofgem put the total number of customers on fixed price tariffs at around three million. Francis said some of these customers will be on tariffs that were fixed before the energy crisis and are therefore below the new price cap levels, but said: “For many people, the first of July is not going to mean that their bills are coming down, but that their bills are going up.”

He said: “It’s not huge numbers of people but obviously for those households that are affected it could be really quite difficult when they see their energy bills go up, particularly if they can’t exit.”

Francis continued: “We didn’t appreciate how many tariffs they were on offer actually fixing people at rates that were above the EPG as it was and I think that calls into question the operations of the energy firms that have sold these tariffs to people as well. They’ve been taking money from government to reduce these tariffs down the EPG level over the last months.”

These include companies such as British Gas whose parent company Centrica reported record profits in its most recent set of financial results. Francis added: “People are going to be looking at that and looking at their bills going up when everyone else’s bills are going down and really starting to ask questions about why that is and how this has been allowed to happen.”

Francis said his hunch is that many customers within the 49-day window for switching without an exit fee will be unaware they could save money by moving to an SVT. He said the industry and Ofgem need to make sure customers know they can do this.

Regarding customers who are still liable to pay an exit fee if they want to switch, he said: “For some people it will actually be cheaper to come out and pay the exit fee and move down to the SVT because some of the bills will go up quite significantly. There probably needs to be an element of transparency from the energy firms to actually tell customers if they’re going to see their bills go up and what are their options.”

Whether or not it is worthwhile for customers to incur these exit fees will be dependent on their usage levels: “The only people who are going to know this and going to be able to advise them are actually going to be the energy firms themselves, and it’s not necessarily going to be in their interest to get them to move.

“There needs to be some honesty and transparency from the energy firms to help customers make the right choices and make sure that people aren’t penalised by the fact that the EPG is going up and they won’t be protected by it.”

He concluded: “It probably calls into question the whole situation around exit fees and fixed rate tariffs, which is something more broadly we were certainly aware of and had been concerned about: What are the fixed rate tariffs that are coming on the market? Will they actually be a decent deal for consumers?”

Dylan Johnson, a director at Future Energy Associates, said: “Our findings suggest that recent changes to the EPG and the Ofgem price cap might leave a significant number of households on existing fixed tariffs unprotected, potentially leading to dramatic energy price increases that many might not be prepared for.

“In light of these potential price hikes, we believe it’s more important than ever for households on existing fixed tariffs to seek advice and support. Furthermore, it’s crucial for these households to verify whether they are within the 49-day window during which they can exit their fixed tariffs without incurring exit fees.”

A spokesperson for Energy UK said it does not have firm figures for the numbers of customers on fixed tariffs that are more expensive than the new price cap levels. They said some customers will see their bills go up but “very few” are likely to be on tariffs that are significantly more expensive. They also noted that at some points nearly 85% of households have been subject to the price cap.

The spokesperson said the number of fixed price tariffs is “inflated” by payment type differences and “many of them are set to end shortly”. Compared to previous years when price comparison websites listed thousands of deals, they said the number of fixed tariffs on offer is “still low,” adding: “There are deals emerging that are lower than the cap. This gives customers price confidence and may enable customers to capitalise on falling wholesale rates faster than might be reflected in the price cap.”

An Ofgem spokesperson added: “As switching slowly returns to the energy market, we have existing rules in place to protect customers, but we are always interested in stakeholders’ views on how these can be improved so that customers have access to the full data they need to draw meaningful comparisons.”

They continued: “As energy regulator, we have taken a range of steps to stabilise the market and protect vulnerable consumers. We will also continue to support energy customers by passing savings from drops in wholesale prices onto customers more quickly through the quarterly price cap. Anyone struggling to pay their bills should reach out to their supplier as soon as possible.”

The Department for Energy Security and Net Zero was approached by Utility Week for a response but has yet to provide a statement.

Notes:

The figures provided to Utility Week count tariffs with the same brand name, but with different prices over successive iterations or different payments methods, as being separate. Future Energy Associates averaged the typical bills across different electricity distribution licence areas to produce a single price for each. These were then compared to the new price cap levels for the corresponding payment method.

The prices quoted in this article are all based on the outgoing typical domestic consumption values of 2,900kWh of electricity and 12,000kWh of gas per year. From October, price cap levels will be based on the new values of 2,700kWh of electricity and 11,500kWh of gas confirmed by Ofgem in May.