The loyalty penalty: extortionate energy prices

How the Big 6 get away with charging extortionate energy prices and how we’ve built Plum to protect you against them for life.

January 2019, the Big 6 and the energy price cap

Wind back to January this year and the big 6 price cap was set to give 11 million people a better deal on their energy with predicted savings of over 1 billion across the UK. We’re now reaching the end of March and incumbents are already back-pedalling after Ofgem has announced wholesale prices are 17% higher than initially predicted. The result? Yet again the average household will spend more on heating their home - £117 to be exact.

Strapped for cash or just plain greedy?

The UK’s biggest energy companies made a profit of £1bn at the turn of 2017 and have increased their profit margins in recent years despite losing millions of customers to challenger firms, switching people to better deals and services. How?

Enter: the Loyalty Penalty

In December last year the Competition and Markets Authority investigated the latest super-complaint: companies penalising existing customers by charging significantly higher prices than for new customers. This is known as the “Tease and Squeeze”. Loyal consumers pay over the odds meaning suppliers can offer very competitive prices to new customers and still make a hefty profit. How different are the prices? Recently the gap between the best and worst tariffs has widened to £300 a year! The longer you stay on the product, the more likely you are to be ripped off.

Why do we fall into the trap?

Energy companies capitalise on some key human behaviours. We’ve used our insights to tap into how big energy does this and what we can do to stop you from falling into the trap. So, how are the likes of the Big 6 screwing us over?

Reciprocity: The “you-gave-me-a-good-deal-so-you-must-be-a-good-supplier” mentality. Suppliers lure you into a false sense of comfort and then pull the rug from under your feet once you’ve settled in. Their loss is intrinsically tied to your profit, so it’s the opposite of reciprocal. They do not have your back - in fact, ever since you hit the 12 month term on your contract they’ll have raised your tariff by as much as 40%.

Regret: Let’s face it, we all try to avoid the pangs of regret. What if the new switching product is worse? Will I end up questioning why I bothered in the first place? Suppliers capitalise on this by making switching seem like more of a hassle than it is and muddying the waters so it’s hard to compare like for like. The truth is, energy is a bog-standard commodity and the only real choice is between going renewable or not. It all comes down to price, ease of switch and the level of customer service.

Status quo bias: We are naturally inclined to resist change. Sometimes an old giant feels more reliable, even if deep down you know that you could be better off elsewhere. Incumbent suppliers turn this to their advantage, highlighting their age and experience as reasons to stay even where it doesn’t impact you positively in any way.  The good thing is, many companies like Octopus Energy and Bulb won’t just supply you with a better service, they’ll handle the friction of the cancellation too.

To check if you’re being ripped off on your energy, type “save on energy” into Plum - our algorithm will let you know if you’re being overcharged, and help you switch to one of our carefully selected providers.

How Plum fights the system for you

Plum constantly compares deals in the background

Reciprocity: Plum has partnered with a curated list of energy providers who actually have your back and avoid these shady practices. Octopus Energy’s Standard Variable Tariff tracked very close to the fixed tariff throughout 2018, at times proving cheaper. Bulb has one tariff for all, going for an added sense of simplicity. They’re in it for the long haul: that means no secretive price hikes after a year, but stable, transparent and reasonable prices for as long as you need to heat your home. And after you join, you don’t have to worry about exit fees - they don’t need to trap you because you’ll want to stay.

Regret: By switching to a smarter provider, you’ll be saving £150 a year on average. What’s more, through Plum, you can switch your energy provider in a few clicks - paperwork, set up, and current supplier cancellation are all done for you, so you can get on with living your life. Just type “save on energy” into Plum, and we will do the rest.

Status quo bias: A good way to overcome this powerful urge is to reverse it. Rather than asking yourself whether you’d switch provider for a saving of £150, ask yourself whether you’d pay £150 extra a year to stay with your current energy supplier. At Plum we’ve worked hard to make sure the process of switching is kept simple. Our curated suppliers are backed by the energy switch guarantee and provide an outstanding customer experience.

Our mission is to help you beat the system. For too long, incumbents have profited by pulling the wool over our eyes. It’s not fair and it’s not the way businesses should behave. That’s why we’ve built this tool (and a few others) to keep you safe from financial harm, for good.


To check if you’re being ripped off on your energy, type “save on energy” into Plum - our algorithm will let you know if you’re being overcharged, and help you switch to one of our carefully selected providers.

Try it now here