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Confusing energy prices – Ofgem’s plans are not the answer

Calling for a single unit price

Energy prices are too confusing. The government and Ofgem must sort this mess out by forcing energy companies to present their prices in a clear, simple way.

Six months ago David Cameron stood up in the House of Commons and made a bold commitment that took everyone by surprise.

After yet another round of inflation-busting price rises by the big energy companies, he promised to intervene and legislate so that energy companies have to give the lowest tariff to their customers.

Tomorrow the energy regulator, Ofgem, closes its consultation on these plans. But our new analysis has shown that unless these proposals are improved, more than 3.4 million households could end up paying over the odds for their energy as they still struggle to identify the cheapest energy tariffs.

Ofgem’s plans could cost millions

Ofgem claims to have a solution with its new ‘Tariff Comparison Rate’. But this APR-style metric will only tell customers the representative price for a medium user of both gas and electricity.

Given only a quarter of British households actually use this level of energy, that leaves three quarters of people making price comparisons based on the wrong numbers. And that could leave millions opting for an unnecessarily expensive energy deal, resulting in people collectively paying an extra £55m on their bills.

For years consumers have had to deal with ridiculously complex and confusing energy prices and tariffs, with nine out of 10 people unable to work out the cheapest tariff in our own investigation. Most of us have never switched supplier, while for those that have switched, the confusing way energy is priced has led to many choosing the wrong deal.

With escalating energy prices remaining a top financial problem for households we hoped the government and Ofgem would sort this mess out by forcing all energy companies to present their prices in a clear, simple way and to make it much easier to switch.

While it’s good that Ofgem has told companies to reduce the number of tariffs they offer, its plans don’t tackle the barriers to switching. As a result it’s likely customers will be put on the best of a limited choice of deals with their current supplier, rather than being able to find the best possible deal across the energy market.

Simple energy prices will save money

Which? campaign for single unit prices in energyThat’s why Which? wants the government to step in and legislate to require single unit prices for each energy tariff, in the same way that petrol prices are displayed on the garage forecourt, so that people can easily compare between suppliers to find the cheapest possible deal for them.

It should also make a new rule that suppliers must take no more than one week to switch customers, instead of the current slow shambles that often puts potential switchers off.

This could finally inject much-needed competition into the broken energy market, firmly putting the consumer in the driving seat. But for that to happen we need a regulator that really listens to consumers. Don’t hold your breath.

Comments
Contax says:
22 July 2013

I am with Scottish Power and life has been so easy with them compared to over 5 years with Npower which are hell on earth. I monitor my electric and gas meter readings daily also keep monthly and yearly records so I can compare my usage at any time, I know my maximum usage so I get to say how much my DD is, I always keep my balance in credit. I am all for no standing charges, no 2 tier tarrifs, just sell at at a kWh rate like petrol and diesel are sold by the litre, no extra for delivery and metering. Is Which going to take this up with Ofgem to make the brick brains there see how their standing charge will hit pensioners, single people and low paid families with low usage. EDF have put the idea to Ofgem to go that way if the other suppliers do the same, Ofgem said it would not be suitable for the disabled, I can’t understand why. Can some one start a petition to get the goverment to step in.

Ina Milne says:
27 February 2016

It should be easy for Ofgem to determine how much the transport and administration cost for gas and electricity around the country comes to. This information should already available from data before these services were privatized

BARRY LONG says:
5 August 2019

I’m a low energy user currently £620 a year for dual fuel with EDF. Their standing charge is over £170 of the total including 5% tax. I’m paying nearly a quarter of my years total in standing charges , needless to say I’m changing supplier but even the new supplier still makes standing charges. I think the system of standing charges by energy companies iniquitous with little regard to customers as in all the big suppliers make the charges so what choice do we have. Come on
OFGEM stop this energy cartel shoddy practise.

Not all energy companies have a standing charge in their tariff structure and some that do also have alternative tariffs without standing charges, but the unit rate would almost certainly be higher so you would need to do a calculation to see which tariff is best overall having regard to your consumption.

Comparison websites can help find a suitable tariff for you or you could ask your present supplier whether they have an alternative tariff without a standing charge. Which? Switch is considered to be one of the best websites for comparing the market [which.switch.co.uk].

Standing charges mean that low energy users like Barry pay more for energy than high users. If we are going to encourage people not to waste energy there should be an incentive. Getting rid of standing charges would be a start.

To add to John’s advice it’s worth thinking about whether your planned use of energy may differ from last year. Which? Switch is OK as far as it goes but does not include collective energy schemes that are offered by some councils.

DerekP says:
5 August 2019

As John said, there are already some zero standing charge tariffs out there.

But, for me as a low energy user, they don’t currently seem to minimise my annual costs, when I shop around for the best deal on Switch with Which?

I doubt most people wilfully waste energy. It is too expensive. They will use what they need to use, and try to economise.Those who leave their windows open with the heating on are unlikely to bother about the money. I’d suggest what matters to most people is their total annual cost. It does not matter what proportion is a standing charge – the lowest total bill is what I look for from a decent supplier. Low energy users can, as has been said, use a unit-price-only tariff but they will pay considerably more per unit. The choice is there.

There are numerous reports about energy waste in homes. Heating unused rooms, leaving the heating on when the house is unoccupied – or even 24/7 – soon pushes up energy bills. Cutting down on energy use is as important as improving air quality in our cities and reducing the amount of single-use plastics – in my opinion.

As the unit charges represents more than 90% of my energy bill I am under no incentive to waste energy than if I had no standing charge.

The high cost of energy gives each of us on limited incomes a reason to be careful with our use of gas and electricity.

About a quarter of my annual energy bill, similar to Barry. Standing charges effectively penalise low energy users, which is unfair, quite apart from the environmental issues.

If you think a standing charge is not appropriate then go to a no-standing-charge tariff. Energy companies have fixed costs in the provision of a supply and it seems, to me, perfectly reasonable to have a standing charge to contribute to those. Why should I pay more to have my account administered, my meter read, just because I use more energy.

Low energy users pay less then higher energy users; not sure I would call that penalising. However, with over 50 energy suppliers to choose from I still suggest the prudent bill payer will use Which? Switch, say, and find the appropriate one that gives them the lowest annual bill. what we pay in total is what matters (to me).

This topic has been debated endlessly. This one goes back 6 years. https://conversation.which.co.uk/home-energy/standing-charge-lottery-energy-gas-electricity-bills/

I’ve recently switched both my leccy and gaz using Switch with Which?

I think I’m quite a low energy user as I spend roughly £400 per year in total.

None of the great value deals that I chose had zero standing charges – deals offering the latter were more expensive.

Whether keeping the home comfortably warm throughout the cold months, heating unoccupied rooms, and leaving the heating on when we go out is considered to be wasteful is a matter of personal preference and priorities. I fully understand and support the energy conservation arguments but in our view keeping the entire fabric of the well-insulated house warm is more important than some other things so we don’t waste our money or time on those. Some of the activities foregone are possibly even more wasteful of energy and environmentally harmful than the central heating and hot water.

If lack of heating leads to problems such as condensation and mould growth I would agree. I find that enough heat passes through the ceilings to keep rooms upstairs aired and dry. My neighbour leaves the water heating on when the family go abroad for a couple of weeks. I suppose it’s useful to have a tank of hot water ready for baths and showers when you get home. 🙁

malcolm r says:5 August 2019
I doubt most people wilfully waste energy. It is too expensive.

The big shops do and are some of the worst culprits. All Boots branches that I know keep their doors open: summer or winter. IN a hot summer, when the air con in boots is working flat out, the doors will still be wedged open.

Never mind, the cost can be passed on to customers. 🙁 Boots claim to be ‘champions of change’: http://www.boots-uk.com/corporate-social-responsibility/what-we-do/environment/energy-and-carbon-management/ That’s OK then. Maybe corporate social responsibility should include an obligation to be honest about failings, just for the sake of balance.

So true.

There are three large Boots branches in Norwich, two of them in shopping malls where the shutters are open during all trading hours but the overall mall area is air conditioned and has closed doors at all public entrances. The third Boots branch has doors at both public entrances which are kept closed and one of them opens and closes automatically. The temperature in that branch is not particularly low in hot weather, unlike many stores, so it seems to me that the air conditioning has been set sensibly so as not to waste energy.

Particularly in these days of austerity and a vulnerable high street, I would have expected store managers and their bosses to be very aware of all costs associated with operating a premises and keep them under strict control. Our local big Boots is also in an enclosed mall so having the doors open, like the other shops, is irrelevant. The shop that opens onto the High Street has closed doors in common with the other shops.

Years ago I tried to get a branch of Lidl to turn off the lights after they closed at 8pm. As far as I know, all the lights were on all night, even when the store was deserted. Their head office was appalled when I informed them (twice) but it was still happening years later.

I presume that the zero standing charge tariffs are used by those who have property that is standing empty most of the time or don’t understand that they do not necessarily offer best value for money.

DerekP says:
6 August 2019

Here in Gloucester, our main Boots branch operates from behind closed doors. But they enjoy the benefit of some automatic doors, who take obvious delight in opening for you and then close behind you, with a slightly smug satisfaction in a job well done.

No need to panic then.

Automatic doors put people out of work, This is a much nicer way to be entered, with not a smug in sight

DerekP says:
7 August 2019

Sorry, you’re not coming in here with those jeans and trainers…

I’d like to see one national energy comparison site, run non-commercially, where you enter your predicted annual use and see a list of all offers. Make your choice. Personally, I use Which?Switch each year. It takes little time and usually makes a worthwhile saving. For those without internet access it can be done, I gather, on the phone. More tedious I expect.

The sooner we abolish the artificial and seemingly worthless (even politically I would suggest) price cap, abolish loss-making fixed-price fixed-term deals, the better in my view. Like most other commodities we should pay the going rate otherwise I suspect the market gets distorted.