E.on blamed industry reforms backed by the PM David Cameron as it revealed it was pulling its discounted ‘StayWarm’ tariff – which offers fixed-price energy for pensioners based on their actual use over the past year.
From next week, these customers will be “renewed” onto E.on’s standard EnergyPlan, which could be as much as £180 a year more expensive, unless they call up and try to find a different deal. E.on insisted it had no choice following proposals from the industry regulator Ofgem for energy suppliers to cut the number of tariffs they offer to just four per fuel.
The Ofgem proposals have been backed by David Cameron as part of his bid to improve transparency in the energy market and place people on the cheapest rates possible.
But industry experts have warned for months that Ofgem’s plans to remove “niche” tariffs will simply force up the average price in the market.
In a statement, E.on said: “Due to new Ofgem rules, which includes limiting the number of products we can offer, the StayWarm tariff will close as current contracts come to an end from 7 October.”
Insisting on only four tariffs is ignoring the most basic point about how producers try to slice and dice their market. Everyone is always trying to get the most they can out of the customer base in aggregate. And the way you do this is to try and segment said market. This group over here are rich so we’ll sting ’em. This group over here is penny pinching so we’ll offer something cheaper. This is the explanation for the branded baked beans, the supermarket baked beans and the supermarket’s basics range of baked beans. It’s also the explanation for the different tariffs in the energy industry.
So, you cut the number of tariffs that can be offered and it’ll be the ones looking for the penny pinchers that go first, of course. For they are, by definition, the low profit ones. They were only offered because competition between suppliers meant that it was just about worth reaching out to get those marginally profitable customers. But if you can only offer four tariffs then it’s not worth slicing and dicing the market finely enough to reach those people: thus they will have to pay more. For of course, every supplier can only have four tariffs and it will be that low profit one that they all drop.
It’s not just that we’ve got the fools trying to play God in hte markets, it’s that they don’t seem to know anything about markets while they do so.