Energy firm E.ON to raise prices

Energy group E.ON has become the last of the big-six energy suppliers to announce it will increase tariffs this winter.

Its average dual fuel bill will increase on January 18 by 8.7%, with electricity rising 7.7% and gas by 9.4%.

Having pledged in May to keep residential energy prices on hold during 2012, E.ON said the new year rise was necessary due to the price of energy on the wholesale markets and regulatory costs.

E.ON has about 4.8 million domestic customers but 800,000 of its customers on fixed and capped tariffs will not be hit by the price rise. From January 18, a typical standard dual fuel customer paying by cash or cheque will see their bill rise by around £110 a year to £1,370.

Audrey Gallacher, director of energy at Consumer Focus, said: "Most industries will pass on rises in costs, but given the low levels of confidence consumers need to be reassured that retail bills, wholesale costs and company profits are in balance."

Rising energy prices have been a major driver of high inflation that has been squeezing households in recent months.

E.ON chief executive Tony Cocker said: "We have held back from increasing our prices for as long as we possibly could and at the same time have worked hard to reduce our own costs as a business so that our customers can get the best price possible. However, some 16 months after our last price increase, and almost a year since we actually cut our electricity prices, we have had to make the difficult decision to increase our prices."

E.ON said that, as well as higher energy prices on the wholesale market, its network costs - the prices it pays to use the wires and pipes to transport energy - had jumped 10% this year. The German utility company also said the cost of social schemes, including providing free or subsidised insulation, had more than doubled in the last 12 months.

The cost of using more renewable energy, which E.ON said had increased by more than 60% from last year, was also blamed for the bill rise. E.ON said it expected costs to rise further next year and said it would also be hit by the Government's carbon price floor, which requires energy companies to pay a minimum price to cover their pollution.

E.ON added that last year its domestic profit margin had been less than 2%.