We’re calling for radical action for fairer energy tariffs

by , Executive Director Energy & Home 22 February 2013
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Our executive director, Richard Lloyd, says Ofgem’s proposals for simpler energy tariffs do not go far enough. The Prime Minister’s promise for fairer energy bills will fail without more radical action.

The inside of a pylon at sunset

Ofgem’s proposals for simpler energy tariffs, backed by the Prime Minister, are a welcome step in the right direction.

But they do not go far enough to keep prices in check, at a time when spiralling energy bills are consumers’ top financial concern.

Which? believes that the government should take more radical action to provide not just simpler, but fairer tariffs.

There is a real danger that these proposals will fail to live up to the PM’s promise of fairer bills because of the lack of competition in this market. There is nothing in today’s proposals to stop customers simply being put on their current suppliers’ ‘best’ uncompetitive deal.

Keep prices low with effective competition

Prices will only be kept as low as possible if there is more effective competition and switching between energy companies. For this to happen prices have to be presented in a clear, consistent and simple way, through a single unit price, so people can readily identify the cheapest deal for them – not just with their current supplier but across the market.

Consumer trust in the energy industry has plummeted, so the government must act to give consumers the confidence that the price they’re paying for their energy is a fair one. If these proposals have failed to fix our broken energy market by 2015, the government must step in and guarantee a fair price for all.

52 comments

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Malcolm R

Richard, I have never had any problem finding the best energy deal as, like many, I look at the switching websites – including switch with Which. All that matters to me is the total annual bill. And I do understand the way the bill is made up – not that it is necessary.
I happen not to agree with a single tariff because I do not think that represents the market properly – oversimplification may well be counter-productive. But I don’t want to argue this as others have differing views, and quite right too and its been thrashed around (and still is being). Ofgem have presumably consulted widely and I assume Which has had its input. However at some point we need a consensus to make progress – there is no right or wrong solution so we will all have to make some compromises. So let’s just get on with introducing an improved system.
Incidentally, we still have prices that are lower than many other European countries – not often mentioned, it it?

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wavechange

Please carry on this campaign, Richard. It affects almost everyone in the UK.

Some people keep a close eye on fuel prices and switch suppliers to ensure that they always benefit from the lowest price, some do this occasionally, and some have never switched for one or more reasons. What about those who do not use computers? What about the disabled? Should the disabled be expected to pay more for energy? Let’s play the disability card to persuade the government of the need for simple unit pricing.

To have simple pricing, we need to get rid of standing charges. We need to get rid tariffs that have price bands that achieve the same as standing charges. We need to get rid of discounts etc. that make it difficult to compare prices offered by different companies. Ofgem, the regulator, wants to keep standing charges. I think we should treat Ofgem like a faulty regulator on a boiler and get it fixed as soon as possible!

Which? advocates having simple unit pricing that can be compared easily like petrol prices. None of us pay a standing charge when we visit a filling station. All the overheads involved in providing fuel are included in the price per litre.

My remarks refer only to domestic energy. It makes sense for commercial users to continue to negotiate prices with suppliers.

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Malcolm R

Hang on! Why are the disabled expected to pay more for energy?

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wavechange

You are able to find the best energy deal, Richard. That’s great, but spare a thought for the disabled who don’t share your abilities, and the elderly who can no longer cope well with financial matters. It’s not just the disabled but many elderly people and those without computers who do not shop around.

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wavechange

Sorry, that should say Malcolm instead of Richard.

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Malcolm R

It is in no-one’s interests to oversimplify and distort a market. What matters is to ensure that those who do not have the means or the faculties to do it for themselves are helped to do it in other ways. So let’s address that issue. It applies to many areas apart from energy – tax, savings, benefits claims, disabled allowances. i would suggest these are far more complex than understanding energy and deserving of help and advice for the less capable.
I don’t believe the elderly and disabled should be condemned as incapable of organising their affairs well – unless they are in decline of course. They are as representative as anyone, and the elderly often have the benefit of experience and judgement over less mature people. I think it is a little disingenuous to attempt to play the sympathy card. I am not so young, and have a disabled family member and I can assure you we have all our faculties. So let’s keep this factual and not emotive.

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wavechange

I absolutely agree that some of the elderly have better experience and judgement in financial matters. They are usually aware of the perils of living in debt, unlike many younger people. Through working for a charity I know that it is vital to speak first to the person rather than their carer, since having a disability does not necessarily imply a lack of mental capacity.

For Which? to have started a campaign for simpler and fairer energy tariffs, there must be good reasons. The various Conversations have provided me with an insight, and I support the campaign. I recognise the needs of energy companies to make a profit and invest for the future, but is fairly evident that businesses providing public services need to be regulated to ensure that the public is treated fairly.

As you say, helping the disadvantaged with financial matters is much more complicated than energy tariffs, but that is another problem to be addressed.

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D Clarke

I worked for a distribution company and was made redundant in the effort to keep costs down, yes we were paid well for working in all weathers, bank holidays 24/7 I think the public forget how much money it costs to maintain the electrical infrastructure. Everyone expects power to be there at the touch of a button but forget how the aging network needs maintaining, but at least we have the power when we need it ….. at the moment.Unless the public allow the industry to build new power stations, in a couple of years, expensive bills bills will be a thing of the past, because supplies will be disconnected on a rota basis due to a lack of generation capacity. Wholesale prices will continue their upward trend, it’s a finite resource like petrol, better looking at a wind farm etc than sat in the dark.

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wavechange

I well remember the rota power cuts in the 1970s, but younger people may not appreciate how disruptive they are and how dependent we are on services. It is a credit to those working electricity, gas and water industries that we are able to take these services for granted. The power cuts also had a serious effect on industry.

We do need more generating capacity but we could buy time simply by cutting waste that benefits no-one.

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Dave,Newcastle

I agree with D Clarke ” it’s a finite resource like petrol”. It (gas and electricity) needs to be priced by the unit. Standing charges and two tier units need to cease as they are just two of the several confusing tactics used by the energy industry to make choosing the cheapest tariff difficult.From what I read it appears that quite a lot of folk have still never switched supplier.This is evidence that switching is too difficult and so they to bother with it.

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wavechange

Dave – I have recently been discussing energy prices with friends and found several who have never switched supplier. One is concerned about that she might have to use direct debits and have to manage her account online. Despite that, she manages an extensive portfolio of shares very successfully and copes with tax, etc. I have known some elderly people who did not even know that it is possible to change suppliers.

I switched years ago, so I know it is not difficult, but only last month did I decide to look again for a better deal. I’m lazy with financial matters because I find them boring, unlike my late father who had a fascination with such things. I have helped others to switch in the past and will do it again. It would be great to be able to just look at a list of prices and see which is the best for me and anyone else living in the same area.

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jak

Which? is misguided in this campaign. In general prices should follow the underlying cost structure. So there is, in reality, a fixed cost of supplying energy to a property, so this is best reflected in either a standing charge or a higher price for the first kWh (which amounts to the same thing).

The current tariffs may be complicated but they reward people who care enough about their energy bills to shop around and penalise people who do not. This is just like any other market. The bizarre result of Which’s campaign will be that its own members will pay more for energy in future, assuming that Which members in general are more savvy consumers than the population at large, and are on better tariffs than average. Simplifying and unifying tariffs will erode the benefits of shopping around. This is a phenomenal own goal.

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wavechange

jak

I have copied this from the Charity Commission’s website. Sorry for the capitals – I am not shouting: “WE AIM TO EMPOWER CONSUMERS TO MAKE INFORMED CHOICES ABOUT GOODS AND SERVICES. WE ALSO AIM TO CHANGE THE WAY MARKETS WORK TO ENSURE THEY ARE FAIR AND WORK IN THE BEST INTERESTS OF CONSUMERS.”

I think you may have misunderstood the role of Which?. I believe it exists to serve the interests of consumers in general, and members’ subscriptions help to support its work. I am not sure where you have got the idea that Which? is there just to support the interests of its members.

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jak

wavechange

Not entirely true. Think of the ‘Big Switch’ exercise where Which negotiated a favourable tariff for members who joined. Where do you think the savings were paid from? – the less favourable tariffs of other people (ie non-members). Tariffs are a zero sum game. If the variance between different tariffs is reduced and tariffs homogenised, there will be a similar number of winners as losers.

At present the market rewards people who put the effort in to calculate their consumption and compare tariffs. It penalises those who do not. I can’t see why this is seen as unfair as it is just like any other goods. We don’t stop Tesco selling baked beans cheaper than Sainsburys (say) on the basis that the people who go to Sainsburys are paying over the odds.

The fact is, anyone who currently makes an effort to manage their energy suppliers will lose out. That seems a very strange result for a consumer organisation to have achieved.

The Big Switch was open to everyone, not only Which? members. We set up the Big Switch because many people had told us that they found it difficult to find the best deal among the dozens of energy tariffs on the market. Our aim was to provide a simple way for these people to save money on their bills.

In the long term, a single unit price for energy would make it much simpler for everyone to find the best deal for them.

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wavechange

Jak – I was going to say that the Which? offer was available to everyone, but Katie has beaten me to it. I don’t think your analogy is very useful since buying baked beans is very straightforward, whereas working out the cheapest source of energy is rather more complicated. We all need to pay for energy and it’s not fair if only those who are more savvy, to use your word, get a good deal. What about the disabled and the elderly? Are you happy that they should pay more for their energy so that you can benefit from lower prices?

If you want to use your expertise to make some money at the expense of others then owning and trading shares is fare game. It is well established that it does require time and expertise and is not a form of investment suitable for everyone.

I don’t know whether your view is shared by other Which? members, but I hope that most of us want to help consumers in general.

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Chris Gloucester

I’d certainly agree that a single unit price for energy would make it much simpler for everyone to find the best deal for them.
In fact I’d go further and campaign to get rid of standing charges. Standing charges and/or multiple price tiers reward higher users and penalize low users, and low users are usually those least able to pay what in effect becomes a higher unit price.

My argument is based on other business practices for essentials. You don’t pay an admission price as you walk into a Tesco store to cover their fixed cost, and you don’t pay extra if you only buy a couple of items. So why should you, and how is it right and fair that this should be the case, with energy

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Martin Wollstonecraft

Chris Gloucester: “My argument is based on other business practices for essentials. You don’t pay an admission price as you walk into a Tesco store to cover their fixed cost, and you don’t pay extra if you only buy a couple of items.”

Have you actually been in a Tesco or other supermarket recently? You do pay extra if you do not buy multiple items. Nearly every other basic line is no longer available at the one price. If you want one of most anything in a supermarket you do pay more. Even Marks and Spencers have started the practice.

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wavechange

The majority of items are not sold in this way, and that applies to both Tesco and M&S. Thank goodness, because it encourages waste.

Sorry, but I support Chris regarding energy prices.

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Martin Wollstonecraft

I wrote every other basic line not the majority. Funny, I can no longer purchase sausages, bread, fruit juice, certain yoghurts, grapes, cooked meat, pizza, boil in a bag kippers, minced beef, many fish, etc. Go to M & S – row after row after row of lines with red 3 for £6 labels.

And I am too poor to waste food.

And I was not disagreeing with Chris re energy prices – just with his supermarket basketing.

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wavechange

Martin – You also said ‘If you want one of most anything in a supermarket you do pay more.’ :-)

To be honest, I have not looked at M&S recently.

Anyway, I’m very much in favour of energy pricing that helps low users and encourages us to be careful with a precious reserve.

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Malcolm R

I think this argument is somewhat emotive – most of us want to use as little energy as possible. However because of housing type, family situations, medical needs for example however good we are at minimising waste, we end up with a diversity of annual bills. it is nothing to do with whether we are poor or rich, whether we are wasteful or not, it is the situation we are in. Energy bills should be fair to all.

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wavechange

Most people may want to use as little energy as possible, but some put in very little effort. I could give you any number of examples, though this is off-topic enough. There is nothing fairer than everyone paying the same price per unit.

If there are cases of genuine hardship we have ways of supporting them. If I’m not mistaken, you have made this point in another context.

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Malcolm R

Ofgem’s latest report is useful in outlining its approach to a range of tariffs. Their comment re standing charge also is worth considering to give a balanced view to this key topic. No single solution is being imposed on consumers – they are left with choices.
At some point when smart meters are more widespread I would think energy companies may charge different rates at different times of the day (more so than just the limited current economy tariffs), to help even out the demands on the system, and to help avoid having to build excessive capacity to handle peak demand. There would presumably be some incentives for us to use energy at cheaper times, where that is possible. So tariffs may not be simple, but if we want to minimise our bills then that may be the penalty. We would not want to criticise peoiple making use of that, would we, any more than we would currently criticise people getting cheap electricity on Economy 7 for example?

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wavechange

People (and industry) might as well benefit from cheaper electricity when generators have to be kept running. I suggested variable pricing according to demand and availability in an earlier Conversation. What consumers need to know more than anything else is the peak price they will be charged and anything less is a bonus.

Smart meters have been a very controversial topic on W?C. Some of the criticism results from the thought of introduction being imposed on us (as with low-energy lighting), but no-one can fail to be concerned about the estimated cost of the roll-out. There might be cheaper ways of benefitting from lower cost electricity and we did not need smart meters to use Economy 7.

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Chris Gloucester

Martin,

Rubbish, you cannot compare buy one get one free offers, or bulk packs of toilet rolls with multi tier energy tariffs.

If you go to Tesco and buy a few general grocery item or many there is no multi tier pricing and Tesco don’t ask for any standing charge as you walk in.

So energy suppliers should’t either.

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jak

wavechange – so why not regulate every market? Take home contents insurance. There’s massive differences in premiums between different companies. The sums of money involved are large (in some cases higher than electricity bills) and the process of getting quotes is a lot more complicated and time consuming than choosing an energy supplier. Is Which campaigning for insurance companies to offer a single price? No – Which encourages people to shop around. (And disabled and elderly people also have home insurance).

Now to quote from ‘Switch with Which’ – “We understand that our customers have different priorities when comparing energy suppliers. For many, getting a cheaper deal is a top priority but others may also be interested in green energy, loyalty schemes, different payment methods or the customer satisfaction ratings of energy suppliers. Whatever your gas and electricity preferences, Which? Switch will recommend the best energy tariff for you.”

So at the same time as acknowledging customers’ need for diversity, Which is trying to remove it. In no other area does Which try to prevent a market from offering diversity. At present the energy companies compete for my custom with a diverse range of tariffs. I just do not see the case for restricting choice.

And finally, sites like uswitch and Switch with Which are not difficult to use. If such sites didn’t exist there would be a problem. But they do exist, and it is perfectly simple to switch suppliers. It may take a little time but it doesn’t require expertise.

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wavechange

Insurance is a little more complicated, Jak. Premiums are based on risk and probably past records of claims. I know that Which? is concerned about the fact that existing customers are sometimes charged higher renewal premiums and are forced to either accept them or negotiate a better deal.

If you are not concerned about the disabled and elderly, what about those who don’t own or use computers? Perhaps you could help your neighbours find the cheapest source of energy.

Your original post suggested to me that Which? members should be elitist and selfish. I hope that I misunderstood you. :-)

Consumers have a key role to play in driving competition between energy suppliers and keeping prices low. When more consumers search, more firms will offer better deals to attract them the average price in the market falls. Standardising the structure of suppliers’ prices so that consumers only have to look at the unit rate in order to check the price of their energy offers, in our view, the best chance of encouraging as many consumers as possible to engage with the market.

Despite having been around for many years, price comparison services are only used by a minority of (generally wealthier) consumers. We believe that a single unit price will maximise the range of consumer media – newspapers, magazines, suppliers’ websites, digital teletext – in which accurate and meaningful energy prices can be communicated to consumers without the need for them to provide information about their usage and current tariff that may be difficult to find or understand.

At a more fundamental level, we also consider that the energy market is different to other sectors, such as home insurance, where consumers who invest time shopping around may get a better deal than those who don’t. Ultimately, consumers have a choice whether to buy home insurance. If they don’t like the buying process and the way that offers are marketed they can choose not to buy the product. While we wouldn’t recommend it, not having insurance wouldn’t stop a consumer living in their home.

Energy, on the other hand is a service that – at least in terms of the provision of light, heat and hot water – is essential for modern life. Consumers cannot ‘opt out’ of the energy market if they don’t accept the way it is sold at present. As such, we do not believe that our view on how best to enable choice in the energy market contradicts our view on how this should be done in other markets.

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Alan

More choice is good. I don’t understand what is wrong with using a comparison site to switch when it is no extra cost to the customer.

What needs to be made simpler is the way the results are organised and how they are presented to those who want to switch tariffs.

With so many suppliers, even if each had only four energy tariffs for each fuel (like Mr Cameron is proposing) it would still make shopping around without the use of a comparison site quite a task.

Standing Charge and non Standing Charge tariffs further complicate things.

Personally, I think it’s easy to switch at the moment. Let the energy companies have as many tariffs as they think they need and leave it to the comparison sites to do all the hard work for the customer.

Regarding not having access to the internet or a computer, some sites have a telephone number, you can call (like yoursuresave.com) and they will conduct an energy comparison over the telephone for you.

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wavechange

Thanks for making the point that price comparisons can be made using the phone, Alan. I had not appreciated this. It would be interesting to have a breakdown of use of these services and why they are only used by a minority of consumers, as James says.

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Malcolm R

James Tallack, there will always be legitimate reasons for offering different tariffs
– off-peak usage (currently Economy 7) which could become more complex as smart meters could allow different rates at different times of the day. Legitimate because it rewards usage when the generators need load.
– fixed price and variable price tariffs – fair to let the consumer decide
– Direct Debit vs. paper billing – cheaper to administer and more reliable payments
So it will never be simple, unless you force it to be just for it’s own sake.
Incidentally, once you have chosen a supplier, who offer several tariffs, had you considered having them bill you for the one that gives you the cheapest over the year? Why commit to a specific tariff at the outset – when it might not be clearcut as the best for you. I think in particular of Economy 7 types where the result depends on knowing how much you will use off peak.
Using a comparison tool, online, by phone, or with assistance, will still be needed to get the best deal.
You are unrealistic to dismiss house insurance – the majority buy this, many online, and I don’t think suggesting it is not essential is a sensible argument. Certainly car insurance is compulsory, and many buy that online. Much more complicated than energy cost where essentially you just put in your annual cost or usage with your details. Suggesting, as has been, that certain groups – disabled and elderly – are in general any less capable of doing this than other sections of the population is really not a good argument either.

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jak

What this conversation is starting to show is that arguments in favour of Which’s position are by no means as clear cut as assumed.

At the heart of the entire debate is the focus on tariffs as the villain. The assumption is that tariff complexity has led to a diminution of competition and excessive margins. But in 2007 Ofgem published a report on the retail energy market. Its conclusion “Our analysis shows that all segments of the market remain highly competitive and not just for customers who pay by direct debit or online. The key findings are: Vigorous price competition between the big six suppliers for all customers – the spread between prices has shrunk and the most expensive suppliers have been forced to become more competitive to stem customers losses”.

So if the market was ‘highly competitive in 2007, why is it now assumed not to be? Have tariffs proliferated out of control since then? No. The absolute level of prices has very little to do with tariffs and a lot to do with the cost of fossil fuel, the geopolitics of energy supply and the phasing out of UK generating capacity. In truth, tariff complexity is a source of annoyance to many people but has little effect on average prices. True, spiralling energy bills are consumers’ top financial concern, but tariff reform will make no difference.

We then come to the proposition to have a single unit price. This in effect removes the standing charge or multi-tier tariffs. But if the fixed cost of an energy supply is absorbed into a single unit rate then high users will pay more overall. That might sound like a nice bit of income redistribution, but high users are not exclusively wealthy: they include families in old inner-city dwellings and they also include retired and elderly people who are at home all day. There is no automatic social equity improvement in removing the standing charge despite the widespread perception that it is unfair.

A far more sensible approach for Which to take would be to support a ‘standard’ standing charge for all providers (which in any case is mainly there to meet charges made by the infrastructure provider). Then at least one could have a single unit rate on top of that. It is never sensible to divorce prices from underlying cost structures.

As for choice, the present system allows people to fix or cap prices, to accept discounts in exchange for exit charges or a degree of tie-in, to choose particular sources of electricity generation, to bundle various other services, and so on. The one thing we are not short of is choice. So when James Tallack states that Which’s proposals will bring choice to consumers, he simply flies in the face of the facts. Choice will objectively be reduced. And where’s the choice in almost identical tariffs and almost identical prices?

And to a final point about transparency. Will Which publish models of the effect of its proposals (in the way that the Government has to with economic impact assessments)? Then we could properly understand the assumptions used and the effects on different types of household. Without a proper evidence base all this is mere speculation.

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Malcolm R

Jak, Ofgem did originally propose a single national standing charge, but in their recent revised proposal have moved away from it. The reasons they gave are in the report on their website.
I think the suggestion from Which that by having simpler tariffs will drive down prices is a bit suspect; I expect energy companies will want to maintain their profit margins so overall income will stay the same – some will lose and some will gain. Let’s hope that we will all contribute fairly and not cross-subsidise.

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Chris Gloucester

Jak,
I disagree with your view on standing charges and your opinion about high energy users not getting what is effectively a discount being a way of redistributing wealth. In fact I nearly choked on my toast when I read your comment such was the obviously oblique thought pattern that must have spawned such a point of view.

And your comment; ” high users are not exclusively wealthy: they include families in old inner-city dwellings and they also include retired and elderly people who are at home all day. There is no automatic social equity improvement in removing the standing charge despite the widespread perception that it is unfair.”

Well that’s simply wrong. There are already initiatives to address the problem of high users who are poor. They can get help with efficiency improvements. And I’d argue that the people who are not poor but simple use loads of energy because they can afford it, of which the proportion is significant, should not effectively get it cheaper.

Nowadays the name of the game is use energy more efficiently and pay no more than necessary for it and standing charges together with multiple tiers of price tariff do not promote that idea fairly.

Your other comment that “Which” should support standing charges, also wrong, prompts me to take the position that should “Which” ever lose the plot and go this way my subscription ends the day after I find out.

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Malcolm R

I would have thought the prime objective is to minimise your energy bill, not to knock different groups of consumers. I don’t knock those who installed solar panels and get an excessive feed in tariff that the rest of us subsidise!
At present you can choose your supplier, and the tariff that gives you the lowest predicted bill. That may be through a single unit charge, a dual unit charge (proposed to be abolished) and a standing charge plus unit charge. The consumer is given a choice – that is to my mind sensible. Ofgem – who no doubt Which? contribute their views to along with other parties – propose retaining the two options for energy companies to offer.
“Simple” is not an end in itself if it removes choice. Single unit charge is simple; standing charge + unit charge is simple. Easy to calculate your likely bill for the best result.
As for the high user benefitting argument, I doubt any of us want to be high users, because the more we use the more we pay. It’s like saying a town driver pays more per mile in fuel consumption than a motorway driver, and that is somehow unfair. I have a family home that is as energy efficient as I can reasonably make it, done at my own expense to minimise energy usage. I can do no more – my energy usage is what it is; I am not wasteful.
Which should fairly represent the views of all consumers, and work with others and Ofgem to reach a sensible outcome; it should not follow some mantra that is only popular with one section of users. At the same time, it should present all the arguments to its subscribers – not be selective.

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Dave,Newcastle

jak,do you think consumers would all be better off and appreciate the competition if the petrol/diesel industry could introduce standing charges and/or two tier tariffs at the pumps? It shouldn’t be too difficult with modern computers, iris / fingerprint scanners and number plate recognition.It just seems a logical step following on from your posts.

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jak

Dave, you almost got me there! But on reflection, there is a real marginal cost to every extra house connected to the electricity or gas grid. Extra pipe or cables, meter readings, billing. These are costs that literally scale with the number of houses. Ofgem estimates them as several hundred pounds per year (http://www.ofgem.gov.uk/MARKETS/RETMKTS/RMR/Documents1/RMR%20Domestic%20Consultation%20December%202011.pdf)

With petrol, I’m not sure that each extra car adds to forecourt costs in this way.

But there are plenty of other retail situations where fixed charges are imposed. Some web retailers charge a fixed shipping charge per order. Others have ‘free shipping’ above a certain minimum spend. So it’s understandable, even if its not popular, to have a sort of two tier structure. And most goods cost less in larger quantities. So it’s not as if consumers are not used to different combinations of fixed and variable prices.

In short, imposing a single unit charge is a severe distortion to the market.

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Jay

The ONLY source of ‘competition’ IS THE ARTIFICIALLY inflated tariffs…..
The main stories in the press today is Greedy British Gas, increasing profit by 11%.

Consider:
1. British Gas made a profit of only 5% for 2011.
2. A 10% increase in Profit represents only an extra 0.5% or 5.5% profit
3. Do you not think 5.5% profit is reasonable?
So, where does your money go, if it’s not the “greedy, greedy” Utility Companies?
After the cost of the gas, the main expenses are transporting it and taxes
If, we call all the money the Government takes, “Taxes”, then this will be around 20% (including the hidden stuff).
Thus, it is obvious just who the main beneficiaries are from any increase in profitability…
Furthermore, this should raise several questions in your mind:
1. If the profit is only 5%, where is there room for competition?
2. Jiggery pockery with Inflated Tarrifs is (or was) the only ‘competition’.
3. Why are all sources of information complicit about (wrongly) blaming the utility companies?
4. Of what use is OFGEN?
5. The utility companies keep stoom so as not to upset the applecart?

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Martin Wollstonecraft

Well done, Mr Lloyd,

I have just received an announcement from my supplier that they are reintroducing a daily standing charge. The consequence of this simplification (sic) is that I will now be paying 21p per kWh for gas. Thank you very much.

(No, that is not a mistake. I do know the difference between a kWh and a meter unit and I do know the difference between a metric and an imperial meter. The price I have to pay is going up from 8p to 21p.) Congratu****inglations on the success of your most brutal and merciless of campaigns. My benefits are going up by 71p per week. My fuel bills are trebling. I know you call yourself a ‘consumer’ group. Clearly you only give a damn about those rich enough to consume and consume and have no thought for the poorest parts of the society.

What an idiotic and hateful policy.

By calling for a single unit price, we want all standing charges to be scrapped. Standing charges penalise low users and add confusion to tariffs.

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Malcolm R

Katie, this is apparently not likely to happen. Presumably Which are discussing tariffs with Ofgem and have the opportunity to make a case, and help achieve a sensible outcome. However it may be by no means a majority of consumers that want to see standing charges as an option abolished.

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Jeremy

If standing charges penalise low users, their abolition would penalise high users. The tragedy of Which’s position is the failure to recognise (and publicise) that there will be winners and losers under all these proposals. Quite why Which should think it is better to penalise high users than low users is unclear; many poor people are actually high users. We are not talking small amounts of money here – possibly several hundred pounds. I would like to know on what mandate the staff of Which have been pushing policies that could create so much consumer harm.

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Martin Wollstonecraft

“If standing charges penalise low users, their abolition would penalise high users”

I have no idea what the actual figures would be but surely the respective penalties are orders of magnitude different and barely comparable. We are talking about a choice between penalising 99% of users by £2 or £3 per year OR penalising 1% of users by two or three HUNDRED pounds per year and more. A £1400 bill is reduced to £1398 but to pay for that a £200 bill increases to £400.

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Jeremy

Martin Wollstone craft – I’m not sure what the distribution of usages is but I’ve done a back of the envelope calculation. If standing charges are absorbed into unit prices then there will be some value of bill for which the old and new methods lead to the same total. I’d imagine that this would be around where an average user would be; say £800. If the standing charge were £200 of this bill, then if the charges were absorbed, a low user previously paying £500 would now pay £400 and a high user previously paying £1300 would now pay £1400. It is literally a matter of transferring costs away from low users and towards high users. Under the present system there is at least a diversity of tariffs so that different users can find an optimal tariff for them. This will no longer be possible.

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Malcolm R

Fortunately it looks like it will be possible, as Ofgen is proposing a choice of tariffs with and without a standing charge. As now, low users can minimise their bill by opting for a unit-only tariff, while those who use more (as you say generally above the “Ofgem average user”) can, if it benefits them, opt into paying a standing charge plus unit charge. Choice for the customer.

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Malcolm R

Martin, suggest you change your supplier to one who offers unit charge only as an option. For example Ebico offer Equigas at 5.06p/kWh including VAT no matter how you pay or how little you use. I don’t know if there is a downside, but worth finding out more?

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rarrar

So the low consumption users are subsidised by the higher consumption users on these tariffs !

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Malcolm R

I don’t see why – this is one company offering a particular tariff. It is a higher unit cost than other companies, without the standing charge. An option if it suits the individual but I don’t see why anyone else loses out.

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Martin Wollstonecraft

Jeremy, that is not the pertinent sum – it is not one customer being charged £100 more whilst another customer is being charged £100 less. It is that one customer is charged £100 more whilst 200 customers are charged 50p less. The hurt of two hundred customers with a £1500 bill having to pay a 50p subsidy is not comparable to the hurt of one customer having to pay double of what they used to pay.

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Malcolm R

Martin, it would be helpful if you would give tariffs and usage where you find an annual bill doubling.

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Malcolm R

It seems reasonable to look at what Ofgem proposes and why, even if some may disagree. In particular the vexed issue of standing charges as part of a tariff. I asked them to explain why they support standing charges and their reply is attached together with links to documents outlining their current proposals. Standing charge will be an option, with unit-charge-only tariffs another option. Their reply is not edited except to remove personal references.

You can communicate with Ofgem at http://www.ofgem.gov.uk but be warned – they take up to 10 working days to reply, which makes a discussion rather protracted!

“Ofgem published the attached Press Release and factsheet on 21 February updating our proposals since the consultation published in October 2012.

http://www.ofgem.gov.uk/Media/PressRel/Documents1/RMR%2021-02-13.pdf

http://www.ofgem.gov.uk/Media/FactSheets/Documents1/Factsheet%20115%20getting%20the%20best%20deal_WEB.pdf

One of the key elements of our proposals is the banning of complex multi-tier tariffs. This means that there will only be one structure for tariffs – a standing charge and a unit rate. There will be requirements that suppliers express all tariffs as a standing charge and single unit price so comparing across the market is easier. Our proposals to simplify tariffs and for the new Tariff Comparison Rate does not require suppliers to have a standing charge and suppliers could effectively have all their tariffs applying only a unit rate if they wished so, and this would be compliant with our proposals.

Standing charges allow suppliers to recover their fixed costs. If they were banned it would mean that low users of energy, including vulnerable and fuel poor customers, may be an unattractive proposition for suppliers, this is because without a standing charge suppliers would be uncertain that they could recover their fixed costs from these low users. These factors risk creating a two tier market where the best deals are reserved for high users of energy, and uncompetitive deals are offered to low users, who are often the fuel poor.

In respect of your comments relating to tariffs and offering customers the cheapest deal, please refer to pages 24 and 121 of our October 2012 document (http://www.ofgem.gov.uk/MARKETS/RETMKTS/RMR/Documents1/The%20Retail%20Market%20Review%20-%20Updated%20domestic%20proposals.pdf) in respect of complex tariffs and the market cheapest deal.

You may wish to sign up to the Ofgem alerts which will notify you when our next documents are published: http://www.ofgem.gov.uk/CustomPages/Pages/OfgemEmailAlert.aspx. Ofgem will publish its final proposals for these reforms before Easter.”

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