Angered by the British Gas and Npower price rises?

by , Head of Campaigns Energy & Home 12 October 2012
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So, British Gas is set to hike its prices by 6% and Npower is increasing its prices by around 9% in November. This is on the back of SSE’s 9% price rise. Can energy companies really justify these hikes?

Girl with scarf and hat on feels the cold

We’re faced with an all too familiar sinking feeling of another winter of rising energy bills. The British Gas bosses have been in the TV studios and on the airwaves defending the reasons for the increase. It’s not our fault, they say. The wholesale price we’re paying for gas is up 13%, they plead.

The cost of getting energy to people’s homes has added £25 on to bills and will add a further £15 next year, they argue. And they claim that the cost of delivering government policies – things like the energy efficiency schemes – has also increased by £25 per household this year and will add £40 to bills in 2013.

SSE has justified its price rise with similar arguments. And it’s probably only a matter of time before we see Scottish Power and EDF follow suit. The last of the dominant energy providers, Eon has promised a price freeze until January.

But do these claims stack up? The answer sadly is, we just don’t know…

Wholesale energy up – retail price rockets

You may have heard of the so-called ‘rockets and feathers’ analogy – that’s when wholesale prices of energy go up, retail prices rocket up with them. But when wholesale prices fall, retail prices seem to fall like feathers (ie much slower and not as low). You may also have seen charts that show the difference between the wholesale price of gas or electricity and the price that we pay. And these generally make people ask questions about why there seems to be such a gap.

On the face of it, these charts make it appear like we’re being ripped off. But we have to remember that these are in fact indicative and based on a lot of different assumptions.

The problem is it’s impossible to tell what is going on. We have to take it on good faith that the energy industry is working for consumers. And given the recent issues with the banking sector, it’s no surprise we question the information these companies provide us with.

We simply cannot unpick the price rises, there is in fact no single wholesale market for energy. And there is no real benchmark for wholesale prices unlike, say, in the petrol market. And because energy is bought and sold within the six large vertically integrated companies – who make the energy and then sell it on to us – lots of trading happens behind closed doors, making the whole issues even murkier.

Getting something for nothing

Now let’s turn to the issue of the increasing cost of delivering government policies. Running schemes to achieve carbon savings by helping us make our homes more energy efficient do cost us money. Of course, all these offers of free or heavily subsidised loft and cavity wall insulation are not really ‘free’. And when you consider that British Gas has been paying consumers £50 per sales lead, it’s no wonder costs have gone up.

But yet again, what we don’t know is the precise cost of each government programme to suppliers – or how they’re passing these costs on to their customers.

These kinds of questions raise ongoing concerns about just how competitive this market really is. We, as consumers, need to benefit as much as the shareholders do. We need reforms to ensure that there is more transparency in the energy market. Without it, consumers just don’t know whether they are getting a fair deal.

23 comments

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william

Getting something for nothing: You’ve missed off the impending ( next 5+ years ) all the energy companies will be installing “free” smart meters across the whole country. So there’s probably an element of building a war chest to help pay for it.

Wholesale energy up – retail price rockets: All to often we’re told we can’t lower as we bulk bought at a higher price, yet oddly there’s never the opposite story, So maybe the “buyers” these energy companies employ need sacking. Although as its all profit for the companies no wonder they can’t it.

The other lame excuse the British Gas stooge was spouting was increased distribution costs, so what exactly is that pesky standing charge we’re charged covering ?

Some people may think its nice that the energy companies are helping with insulation etc. But what about all the people who did that themselves years ago. Not only have they paid once, they now pay for alot of other people. Nothing fair in that.

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Dave D

Absolutely agree with william and wonder what Which? is currently doing about SmartMeters. I know they’ve managed to get some slight concessions form Government about the scheme but last I heard the Which? line was still “we believe that SmartMeters can deliver some benefits”.

I still believe that they will deliver no benefits, lots of dangers, and will cost us dear. By US I mean the consumers who are having to pay these ever rising prices.

The insulation issue is also one which annoys me, for exactly the reasons described by William and also because I am sick of hearing various organisations claim that these measures are to be paid for OUT OF PROFITS, not out of extra charges. It’s never been paid for out of profits, but I think maybe it’s time someone made a stink about this.

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M Jarvis

“I am sick of hearing various organisations claim that these measures are to be paid for OUT OF PROFITS, not out of extra charges”… and profits arise through charging higher prices, so you are absolutely right and these various organisations, one can only imagine, are the industry apologists who are in the pockets of the Power Companies.

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David

We all (including Which) seem resigned to the fact that the energy market is opaque and open to manipulation and that, therefore, there’s little that we the consumer can do about it.

Well, isn’t there? How about voting with our feet and switching to the cheapest at any given moment, even if it means doing it weekly or monthly until the energy suppliers get fed up with it?

Problem is that the various comparison sites that I’ve seen are so complicated as to be incoherent, usually because the suppliers themselves deliberately obfuscate. If there’s one simple site out there can someone please tell me? If not, could Which? step in to fill the breach and give us, the consumers, a means of exercising our rights?

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william

That’s all well and good, but not everyone has access to comparison sites so you’ll probably not get the take up you’re looking for.

’twas one of my bugbears re the Which? Big Switch, how to get my parents involved, no smart mobile phone and no internet.

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shuv

Try Spark Energy, its the cheapest BY FAR no complicated tariffs (just two)

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Daveg

I live in a 3 bedroomed terraced house.Have double glazing,cavity wall and loft insulation.I pay by direct debit and when my contract requires renewing I ring the firm ask the nice young lady what would be the best scheme for me.I have been with them for about eight years and at present am paying £49 a month and have just received cheque for £172 in credit.you don’t need comparison sites.give the girls at SP a ring

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richard

Last year EDF wanted to raise my bill to £100 a month – I protested – and they didn’t raise it. But I re-examined my energy use – Decided I would wear a sweater instead. My bill was reduced to £22 a month and received a rebate of £325. I have a 6 bedroom house – and all insulation possible installed. I have three large dos which help.

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richard

Oops – EDF wanted to raise my bill to £100 from £51 a month

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David Surrey

The problem with the energy companies is that generally they are not under the control of the UK. Other European countries have restrictions so that “strategic” industries remain under the control of that country. Trying to be “good Europeans” no such strictures were made by the UK. The energy companies have no loyalties to the UK, they just want to make as much money as possible. I do not generally approve of State ownership, but for UK startegic industries I think there is only one solution and that is to take these companies back under UK public ownership. Not that I want that these become dominated by trades unions. No doubt there will be howls saying what I propose cannot be done and it is against the rules of the EU. Other countries look after their own why cannot the UK?

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Bob, Stanmore

Here’s another interesting example of dealing with British Gas over their pricing policies. I have a Homecare 400 product which provides services for boilers, central heating, plumbing and home electrics. My renewal quote came in at £489.30 which was a more than 7% uplift on last year’s prices (which struck me as hard to justify given there is no natural resource market argument for this service). I then went to the BG website and got a quote of £372 for the same service (24% less than the renewal quote!). I phoned to complain. The upshot was that, because I take my gas supply from BG, they would offer me essentially the same service for £324 (33.8% discount to renewal quote) and they would hold this price forever provided I continued to take my gas supply from BG; the only changes to the cover are removal of accidental damage cover, tap washers are not covered and because, it is not an insurance backed policy, there is no resort to the Financial Ombudsman service. All of this points to two conclusions: BG (and I suspect it is not alone) does not treat long-standing customers (25+ years in my case) with respect or offer them the best deals automatically and, secondly, it pays to complain (which the British psyche is naturally averse to doing).

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william

Homecare have been quoting better deals for new customers for years, so every time my one year contract ends I wait 6 months and sign up as a new customer again. Its sad that any Company should feel the need to treat its loyal cash cows, oops, I mean customers in this way. Its’s sad that 99% of companies operate in this way. I would say 100%, but I’m hoping there’s at least 1 that doesn’t although I can’t think of any.

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M Jarvis

Its’s sad that 99% of companies operate in this way. I would say 100%, but I’m hoping there’s at least 1 that doesn’t although I can’t think of any. There is – it’s called HMRC (Her Majesty’s Revenue & Customs)!

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william

@M Jarvis, Not in my experience, I don’t think they even know how to use a calculator. And when you query their results, they say of course its right, only be be contradicted 7 months later with a we’ve paid you back too much , you owe us. So I’d put them in the 99%, sorry.

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M Jarvis

One nationalised company with the buying power of 20+ million homes, one tariff, lower prices – simple as. But the profiteering energy companies won’t want that and the energy so-called ‘watchdog’ (off-clue?) is as effective as a chocolate teapot, with their spineless appeals to energy companies ‘not to be naughty’.

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wavechange

One nationalised company, and all our eggs in one basket? I can’t think of a better way of guaranteeing power cuts. :-)

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M Jarvis

“One nationalised company, and all our eggs in one basket? I can’t think of a better way of guaranteeing power cuts” – So is forking out £40million each time to administer private rail contracts (for example), when the rail network should be a unified entity, also good sense and use of taxpayers money?

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Sophie Gilbert

I have just switched to the Cooperative Energy from Scottish Gas, inspired by Schnookie’s and John Ward’s comments in another convo. According to their price comparison I won’t save a huge amount of money, but we all need to stay light on our feet to keep on getting the best deals, don’t we?

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Virginia Wiltshire

The cost of fuel goes up faster than my income.
This time I will tell the supplying company that I will not pay the increase, but will continue to pay what I am used to paying. I do not like being exploited regardless of my circumstances.

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Malcolm R

It looks like the £40m cost of the rail franchise is down to either Civil Service or Govt bungling – again. And you want them to run gas and electricity? They don’t have the competence or the will – politicians are in it for themselves in the short term, not us in the long term. A strong consumer group with its members support should have the power to negotiate fair services, shouldn’t it? Isn’t that what Ralph Nader used to achieve in the USA. Consumers have the power if we act together in a coherent way. But how? And who would represent us. Is that one of Which?’s roles ?

Scottish Power is the latest to jump on the ‘price hike bandwagon’. It has it’l hike its gas and electricity prices by an average 7%, which will affect 2.3 million households: http://www.which.co.uk/news/2012/10/scottish-powers-energy-prices-set-to-soar-299421/

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william

So its just the sheep at EDF to follow now ? Bet E.on are feeling hard done by declaring that they’d wait until the New Year.

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Malcolm R

npower – I currently use Signonline 24 dual fuel. I have just received a letter with proposed new charges. 9% increase?!! Mine has gone up 15% – electricity standing charge and unit charge up 16%, gas 14%. So I checked with Which?Switch – npower came out with the 2nd best tariff for me – Energyonline Jan 2014 – just 6% (just?) more than current tariff, and seemingly all the same conditions. If these tariffs are up to date then what a nonsense – it is dishonest not to disclose a better tariff, mis-selling? The letter tells me there are a host of simple ways to save energy – all except chacking their own tariffs for a better deal.

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