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Limited energy tariffs doesn’t mean limited prices

Energy tariffs: large cooling towers at a power station

Last month, the Prime Minister stunned the media, the energy industry and even some of his cabinet colleagues. He promised to legislate so that energy companies have to give the lowest tariff to their customers.

The announcement was quickly branded as a shambles. Had the PM even meant to make this commitment? Did he get his facts right? And was the commitment possible? The general public were less sceptical. When we asked you on Facebook whether he should keep his promise, a whopping 97% said yes.

From what we’ve read and heard today, it sounds like the government has tried very hard to deliver the PM’s plan. Its proposal is to build on Ofgem’s recent suggestion that each energy company should only have four tariffs per fuel. It will then legislate so that of these four tariffs, one has to be a fixed price, fixed term deal and one will have to be a standard variable deal.

And they will scrap so-called ‘dead’ tariffs – the huge array of old deals in the energy market that people sit on, often paying much more than they should. People on these deals will be migrated across to the new offerings.

Clear, fair and easy to compare

Around three quarters of us are on standard variable tariffs, so this plan should ensure that we’re put on to our suppliers’ best deal for us. The only way we could get a better deal would be if a fixed term tariff was cheaper, or by switching to a cheaper deal with a rival company.

This seems like a neat fix. But, and it is a big but, on its own it will not lead to more effective competition between energy suppliers or drive down prices. So the government needs to go even further. It needs to ensure that energy prices are presented in a clear, consistent and simple way.

It’s blindingly obvious if you shop around for petrol, whether one garage is cheaper than another. But we all know that’s not the case with gas and electricity. Our recent investigation found that only one in 10 were able to identify the cheapest deal when presented with a range of standard energy tariffs.

Rebuilding customer confidence

We want people to be confident that this new cheapest tariff is not only the best deal from their supplier, but that it also compares well with other deals across the market. People must be able to see the cheapest tariff at a glance. This should also put more pressure on energy prices, since customers are more likely to leave a supplier if they can easily spot a better deal from their competitors.

So the government must legislate for a simple, single unit price for energy that will be applied to all tariffs. And more must be done to make sure the cheapest price is also a fair price.

Recent inflation-busting energy bill hikes, profit announcements and accusations of market manipulation have left people questioning whether they’re paying a fair price for their energy. That’s why we need the government to launch an urgent and swift independent review in to what’s really behind the rising cost of energy.

Comments
Member

Hopefully this will make price comparison websites redundant in this market. If only . . .!

What consumers also want is more stability – we don’t actually enjoy constantly reviewing our tariffs and switching suppliers with all the attendant risks, or being pestered by energy companies who tell us they have shaved a milli-cent off their rates so they are now better than BG or E.on or whatever. We want a market where we can be at ease over energy prices knowing that we won’t be penalised for staying loyal or ripped-off for not giving 12 months notice. Plus we want bills that make sense and can be understood by the average householder.

Member

1. The proposal should stop people being left on old tariffs, or transferred to “standard” (higher price) tariffs when a deal runs out. But that will cost the energy companies, so other consumers will pay more to compensate.
2. Identify the cheapest deal at a glance? This is a commercial market, so energy companies themselves will not help you find the cheapest tariff around – that’s for us to find – just as with insurance and banking for example. So we’ll still need price comparison sites to source the best supplier. For those not on the net, Which? can help by publishing best buys, as it does for banking.
3. Legislate for a simple single unit price for all tariffs? I’m not sure what this means, but if you mean all suppliers charging the same unit price, there’s no competition is there? The key is to make sure that real competition exists, no cartels operate, and that wholesale gas and electricity prices are published. But none of this is simple for the suppliers – they will buy future supplies for different periods, taking a risk with the movement in prices. Petrol is not sold at a single price per litre – how is other energy different?
4. One thing is for sure – the energy companies will make the profit their shareholders expect whatever legislation is imposed. If we really wanted to contain energy costs, then the expensive wind farms, solar panel feed in tariffs and other green energy projects done for political reasons would not have been implemented.

Member

The only way the government will make any difference in this market is to either buy out one of the suppliers and preferably one which generates most of its own power ( EDF springs to mind as 60% comes from its own nuclear generators) or create a new supplier with as much generation as possible. then the government can set whatever prices they like ( hopefully lower). Otherwise the energy companies will just find neat , legal, tricks to get round whatever the government says.

Of course, the other thing that would lower prices is to stop passing all the green levies onto the customers, Don’t we all pay around £300 a year for towards this ?

Member
Len M says:
21 November 2012

What worries me, is that it’s proposed to do away with two tier tariff and have a regulated standing charge. I turn off my gas boiler in the summer for about 4 months, and use an immersion heater in a very highly insulated tank for hot water. This is heated mainly on the low rate on Economy 7. A daily charge for those 4 months, even with a slightly lower basic unit rate, would certainly put my bills up.
I understand, though, that as well as the four standard tariffs, non-standard tariffs will still be available. This aspect has not been mentioned in any of the media, and I wonder if Which? has any more information about this. It has been said that there may be cheaper rates available on non-std tariffs, but generally people will opt for the standard ones, as they perceive these as being regulated, and so less of a risk to change to. Prices will generally go up!

Member

This is already creating confusion here. They say we’ll have a choice of just 4 tariffs and go into some detail how these tariffs will be structured. I have a couple of questions for them:

1. Will my 4 tariffs be the same as those in, say the West Midlands who pay less than Cornwall for their energy?

2. I’m on a Economy 7 tariff as there’s no gas in the village. Does their announcement mean the end of E7?

I prefer to stay all electric as it’s really the only practical fuel that can be produced from green sources, woodburning, if that’s really green being just a niche alternative.

Member

Having fewer and simpler tariffs will only be effective if genuine competition exists in the market place. Consumers already benefit from a simple ‘pence per litre’ tariff when buying energy from a petrol station. Consumers can shop around easily as well. Obviously, pricing domestic energy isn’t quite as simple as this, but if the free market works reasonably well on the petrol station forecourts, there is no reason why it shouldn’t work in the retail energy sector.

Member

Does the free market work for petrol / diesel? In my area their are only marginal differences in price between all the fuel suppliers – I don’t think there is much evidence that they are really competitive. I fill when I’m nearly empty, 70 litres, so stand to gain most by shopping around. However, at 8 miles per litre (mixing units!) it’s only worth driving 2 miles (4 miles return) to save 1p a litre. So no real incentive to shop around. The fuel companies probably trade on this. Yet they must have significant differences in costs and overheads which will be reflected in the cost to them of the fuel they supply. But not passed on. This is the free market operating – otherwise you get a price war, the weakest go out of business or relent, and we settle back to a market norm. It happens in all businesses – and is no different in electricity and gas supply.
And please don’t suggest nationalisation – inefficient unimaginative unincentivised public servants cannot run businesses.
Perhaps we need a different business model as an alternative – set up an energy cooperative where the profits go back to the members, or go to keep down future costs. Those who choose to be members would then have a direct involvement in the market.

Member

8 miles per litre is about 36 miles per gallon, so the priority is surely to change the car rather than shop around for cheaper fuel. 🙂

Meanwhile back on topic, I think the government should set the maximum tariffs for energy supply and let the companies compete by offering better deals.

Member

“nationalisation – inefficient unimaginative unincentivised public servants cannot run businesses” Very true, but just cos every nationalised industry has been run like that in the past, why can’t future ones be run properly? (and I know it will never happen). The government is short of cash and an energy company seems a very effective way to generate piles of the stuff with little effort.

Member

I’m on a legacy tariff with npower which I do not want to lose. We are an all electric house with night storage radiators and this legacy tariff gives us an afternoon boost of CHEAP ‘off peak’ electricity for 2 hours, between 2pm and 4pm.

These tariffs with an afternoon boost are no longer offered – so if our legacy tariff goes, it will mean our storage radiators will heat up overnight as now – but be cool, if not cold, by the afternoon/evening.

We will then have to use EXPENSIVE ‘on peak’ electricity to keep warm on cold winter’s afternoons and evenings!

This will be the unintended consequence of forcing folk onto other tariffs and removing legacy tariffs. It will produce the exact opposite of what was intended by making our electricity bill more expensive.

Member
Len M says:
23 November 2012

This report prepared for Scottish Power talks about “non-standard tariffs”, as well as the 4 proposed Standard ones. No body mentions these at the moment, but it could mean your legacy tariff may still be available.
http://www.oxera.com/Oxera/media/Oxera/downloads/reports/Report-4-Ofgem.pdf?ext=.pdf

Member

Wavechange – I am happy with the car I have and am quite prepared to pay for its fuel consumption. I was pointing out that shopping around for cheaper fuel may cost more in the extra miles involved.
I don’t know what is meant by the Government setting maximum tariffs – does it mean a maximum unit price? What about maximum fuel prices, maximum price/mile for public transport? I don’t think government has the expertise to control costs in this way. The answer I believe is to have a free market but encourage other business models where genuine price competition can exist.

Member

Sorry Malcolm, I mean maximum price per unit for a particular type of tariff. Nationalisation did not work so I think it would be a good idea to try maximum prices for home energy, subject to periodic review. If that works then it could be extended to further services.

Member

I sent the following to Ofgem on 17 Nov12:

Dear Sir

I thought your office was going to simplify our energy bills? I have just received my latest ‘simpler’ explanation from E-ON, which offers me five – not four – tariffs:

Energy Discount v1 – £1,399.43 pa Increase from minimum price pa offered – 0
Energy Plan – £1,471.20 pa Increase from minimum price pa offered – £71.77
Age UK Fixed 1 Year v2 – £1537.39 pa Increase from minimum price pa offered – £137.96
Energy Fixed 1 Year v2 – £1,547.89 pa Increase from minimum price pa offered – £148.46
Energy Fixed 2 Year v2 – £1,577.42 pa Increase from minimum price pa offered – £177.99

I appreciate that E-On think they are doing me a favour to offer me the third at a fixed rate for a year, at a higher rate than the first two, so I do not have an increase in cost, but what they do not tell me is when their next forecast increase is going to be so it is a pure guess whether I have got the best rate for me!

To my simple mind, at any one time E-On is paying a fixed wholesale price for their electricity and their gas, therefore, there should be only one price for me to pay for both ie fixed wholesale price plus E-On’s declared margin, regulated by you.

I am retired and the fuel allowance that my wife and I receive each winter from the Government covers less than 2 months winter fuel payments, as my current monthly payment is £121.00. I do not see why I should have to pay an extra £137.96 above the lowest tariff on offer pa to to ensure that my fuel bill is not increased during the year, when I know E-On is paying the same wholesale price under all five tariffs offered above.

If you are to meet the Prime Minister’s request for us to all pay the minimum tariff there can only be no more than one tariff, which is whole sale price plus the regulated margin.

Yours sincerely

Tony Houghton

Member
Len M says:
23 November 2012

As you say, you don’t know when the next price rise might be, and this must stop a lot of people from switching.
One way out of this would be for Ofgem to only allow price rises once (or perhaps twice) a year, and for them all to be within say a fixed 30 day window. There may need to be an exception, controlled by Ofgem, for unusual cicumstances like massive wholesale price increases. Once the window is closed, we could then compare rates, knowing that there would be no surprises just around the corner.

Member
terry says:
23 November 2012

Why is the problem of setting a date for switching never mentioned. At present one is faced with switching early and paying a penalty, or switching after end of contract and being placed on a punitive tariff until the switch can occur. The present nonsense of “switching will occur in between 3 to 6 weeks” ensures that either way the supply company makes money from the consumer. Why doesn’t WHICH campaign for a system that allows a switching date to be requested and agreed???
Let’s make switching user friendly and really save the consumer money!!

Member
Mike Suttill says:
25 November 2012

It would be helpful if the Government put its own house in order as well! A clear statement of how much tax is paid on energy bills would concentrate the voter’s mind. Not only do we have VAT but also “green” energy supplements for wind, solar and nuclear, soon to be increased. In addition the Government will be asked to increase its carbon emissions reduction targets still further at Doha, having already proved that it does not take into account costs to industry, business and the public consumer by setting unachievable and unrealistic targets (Kyoto). The Government should also remove from the Energy Dept and Commission all those who have a vested interest in energy companies of any sort by having positions on Boards of or being paid to lobby government by solar, wind and nuclear hardware and infrastructure companies.

Member
Andy Hayes says:
25 November 2012

I have concern at the Governments intention to limit energy companies to 4 tariffs. Which ones with go? I would expect legacy tariffs along with “Economy” and more than likely my, tariff THTC which Scottish Hydro Electric have a Monopoly on. After advertising an average increase of 9% I have been advised that mine is 22.9%. If THTC tariff is removed it will increase to a rise of 66.4%. This cannot be allowed to happen without some investigation. I also feel that the energy companies should give customers at least 6 months notice prior to changing rates so that customers can look for, not just alternative suppliers but also alternative systems. In addition if they withdraw a tariff they should contribute to the cost of switching to alternative fuels!

Member

I believe the big six energy companies will never be reigned in, they will always find another way to defraud and confuse their customers. Ofgem is a joke and will remain so as long as they are funded by the suppliers. Couldn’t be happier as a customer of Co-op Energy for the past 18 months. Our direct debit hasn’t changed in that time as they realise you will be in debit during the winter months, so don’t massively increase it before winter as the others appear to do. There are only two tariffs, we are on the fixed until July 2013, so easy to understand bills. Life is too short to be constantly in conflict with one of the big six, in our case it was npower !

Member

The simplest is to look at what energy companies make on every £ of turnover. Is it in line with what a business should expect to make for its shareholders, or are they making extremely high rates? The energy business is a very high investment business, with high risks (world market prices can change overnight). That’s step 1.

Step 2: How can the tariffs be simplified without making it unfair. There are both fixed and variable cost components, making it all based on consumption passes costs on to high usage consumers – maybe a good thing. And people who have extremely unfavourable legacy rates do not want any change – everybody else is subsidizing them.

Member

I get both gas and electricity from E-ON, paying by direct debit. The tariff is called Staywarm but, unfortunately this is not mentioned on your “whichswitch” calculator so I cannot use it to fine if I could be getting a better deal.

Member
Derek H says:
4 January 2013

So those of us who have acted responsibly and used the so-called competitive market to obtain the cheapest deal will be penalized because competition will be limited. It’s fair to make sure the supply companies are acting in a reasonable way, but please we as consumers have responsibilities too. If there is to be a competitive market then it is our job to make the best of it and if people can’t be bothered or are too ignorant to do that, then tough !! The option is to return to the old electricity and gas boards which were essentially co-operative and set fair tariffs all round. That sounds good to me.

Member

Derek, I have sympathy with your view – those who bother to research and look after their finances well should benefit. However, what is wrong is those who don’t being left on excessively expensive tariffs by default; that is simply profiteering (and happens all over – insurance being typical). The outcome will be that costs will be more normalised – those who bother will see their bills increase, as those who don’t will see theirs decrease, as companies will seek to maintain profits. Probably a fair outcome.
However, the main issue is to maintain competition and fairness in the reduced tariffs. Although only 4 tariff types are proposed – two mandatory, two at the choosing of the particular energy company – the actual unit charges are left to the companies, which is where true competition needs to be assured by Offgem. In addition there will be discounts for direct debit and dual fuel. I personally hope that standing charge tariffs will be an option – I prefer to pay for the fixed costs separately – and that higher users will not pay penalty tariffs – many have no option whether it is larger families, old energy-inefficient housing or reliance on electricity where gas is not available.

Member
Debs says:
21 March 2013

I have just been notified that I will begin paying a daily standing charge which will bring my summer gas charges up by £19 per month (as I use about £3 per month currently) and in the winter I will save £13 per month so looking at the averages I will be worse off.

Being single I have to pay the same standing charge as my neighbours who can share their bill and also share the heat, etc. I do not understand why to simplify things for people who could easily log onto a compare site if they failed to do the maths, that I have to pay more?

I am cross about another indirect way to drive this growing population of single women to remain in their homes, sat in the cold because we cannot afford the unit price because we have to pay for the use in the months we don’t switch on. It is hard to manage as it is, but why should we supplement the couple next door?

Did the regulators consider this?

Member
Flossy says:
9 April 2013

How do I put timers on my storage heaters? Will this work with Scot hydros THTC system? Our bill has gone up from £150—-£186 per month and all we are doing is trying to keep warm !!!! If we could get the full power heat to come on in the middle of the night it may save us some money??

Member
Andy Hayes says:
9 April 2013

I am also a user of the Scottish Hydro THTC system. SH have a monopoly on this Tariff, they say that you can go elsewhere but it will cost you more! My cost increased by 22.9% in Oct 2012.
The THTC system means that SH determine when they top up your system through a telemeter. They can switch on and off the ‘lower’ tariff that is used to charge your heaters. So they should only draw from the lower rate. Not sure that fitting additional timeswitches, if possible, would help. It my reduce the amount of electricity used but would also reduce the amount of heat availble. I have an ongoing campaign trying to get Scottish Hydro (SSE) to explain why the rise in the THTC is disproportionate to the standard tariff. I have been through their complaints system, the Ombusman ( who won’t deal with commercial matters) and it has been taken up my my local MP Sir Robert Smith. SH appear to either not have an explanation or unwilling to give me the answer. I suggest you write to your MP about the issue. There are many people in the same position, the more who complain the more chance of a solution. Dimplex have a new storage heater, Quantum, it is new technology and claims to reduced costs by 25%.

Member
Flossy says:
9 April 2013

I emailed ScotHydro to request that they put me on a cheaper tariff— they answered ” On THTC there is only one tariff “—!!!!!!! Is this true??? And how can they get away with it ?? When I went to their website it mentioned “Discounted Energy”—why don’t they put us on that?? Fed up .

Member
Derek H says:
9 April 2013

Sorry, but what’s the problem ? So there’s a single tariff. If it’s no good then switch to another provider with a better tariff using any one, or ideally check out a few, of the comparison websites. It’s not rocket science. We have, like it or not and courtesy of Margaret Thatcher no less, a competitive market and though that’s not something which I find ideal, given that it’s there then use it.

Member
Andy Hayes says:
9 April 2013

Sorry Derek but I have been down that route, see above. THTC is a monopoly tariff. You can switch but it is guaranteed to cost you more and you will probably have equipment and wiring costs on top.
So where is the sense in switching!

Member
Derek H says:
9 April 2013

No sorry, you are wrong. See for example:

http://forums.moneysavingexpert.com/showthread.php?t=1128773

It can be done, if you’ve got the will !!

Member
Andy Hayes says:
9 April 2013

Hi Derek
I don’t know how this works as the new supplier has to have control of the telemetry switching.

Member
albe says:
9 April 2013

If only that was true.

Unfortunately what we have courtesy of M Thatcher is an essentially rigged market where all providers will offer expensive tariffs (as there lowest tariff) to feed the greed of shareholders.

Also – under this new regime, the afternoon boost on electric heating tariffs is likely to disappear, meaning expensive on peak electricity will be needed to heat houses without an alternative fuel in the afternoon and evening.

Member
Flossy says:
9 April 2013

Tried web page Derek quoted but seems chancy to go ahead with something that we don’t know worked out cheaper–as the guy did not return to post the outcome of his switch—Will HAPPILY switch if it would definitely work out cheaper—- Has Anyone out there done the switch from SH– and what costs did it entail– wiring etc??? Please help 2 cold pensioners???