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Ever been confused by an energy tariff? You’re not alone

Man confused by bills

Our latest investigation reveals that while Ofgem’s new rules for standardised energy tariffs are a step in the right direction, most people still find them confusing.

Most of us know that understanding your energy tariff is the key to comparing prices. And you probably wouldn’t make any other purchases worth well over £1,000 a year without first checking if you could get a better deal.

So surely it’s good news that energy regulator Ofgem has this year brought in new rules on how energy tariffs are structured? Not as much as you might think, as we found when we put the new energy tariff rules to the test.

Tariffs still confusing

In our most recent experiment, we challenged 505 people to spot the cheapest deal using the standard tariffs of the big six energy suppliers (British Gas, EDF, E.ON, Npower, Scottish Power and SSE).

We found that only a third of people picked the cheapest deal when tariffs were presented in line with Ofgem’s new rules, where tariffs are made up of a unit rate and standing charge.

Of the rest, three in ten picked the wrong tariff and a third either didn’t think it was possible to calculate or didn’t know how to.

Fix the Big Six

Now the results of our latest investigation are better than when we ran a similar test in 2012 on the old-style energy tariffs, when just 8% of people could pick the cheapest deal. But clearly it’s still not good enough that the majority of people failed.

Previously, energy tariffs were a bit of a free-for-all, with some made up of a standing charge and unit rate, others just of a unit rate and others of two tiers depending on how much energy was used. There was also a variety of discounts and rewards, expressed sometimes in pounds and other times in percentages, which added to the confusion.

So while the new rules have helped, our results show efforts to simplify tariffs have simply not gone far enough.

That’s why we have launched our Fix the Big Six campaign, calling on the Government, Ofgem, competition authorities and the energy companies to drive forward radical reforms to fix the broken energy market, including simpler tariffs.

We want to see an energy market you can trust, where you have the power to spot the best deal using simple, easy-to-compare pricing.

So what do you think about how energy tariffs are presented? How could they work better for you to easily compare energy deals?

Comments
Guest
Alsop says:
14 March 2014

One thing the big six do right is they display all their tariffs on their main web site so you can work out how much it will cost to chnrge,standing charges & cancellation fees.
However the smaller companies like extra energy, ovo etc do not.Even if you phone them they cant quote you the tariffs for your area.
You have to get a quote and you have to put your name address etc to get the quote if you dont go with them you get e mails etc asking you to move to them.
ALL enegy suppliers should be made to put on their web site a table of charges including tariffs,standing charges and cancellation fees.
So this must change as well

Guest

From a Conversation published last September: “This bewildering array of charges is yet another example of how the energy market’s too confusing for us to find the best deal. That’s why Which? has been calling for simple tariffs, without standing charges, displayed in the style of petrol forecourt prices, so that we can all easily spot the cheapest deal.”

I am glad that Which? is continuing to pursue the issue of complex energy prices but very disappointed that they seem to have stopped pushing for simple tariffs without standing charges. Not only do standing charges cause confusion but they mean that those who use little energy are subsidising those who use more. Ofgem has allowed energy companies to offer tariffs with no standing charge but the unit price is higher, so that they are often a more expensive option.

The fairest way is to get rid of standing charges and have simple prices that can be compared, just as we compare the cost of petrol or a loaf of bread.

Some people compare the cost of electricity and gas regularly and switch to ensure that they are always getting their energy cheaply. Many don’t do this regularly for various reasons, and it is too difficult for a significant proportion of the population.

It is time to consider those who struggle to pay their bills. Come on Which? and continue the campaign for simple unit prices and no standing charges.

Guest

I entirely agree. It is my endeavour to be at ease with utilities, as I am sure most people wish to be. I can’t stand the constant manipulation of tariffs but I am not prepared to keep on doing a comparison exercise to see if switching would make a worthwhile difference. Every switch costs the industry money and causes the householder a degree of inconvenience with more correspondence, bills and junk e-mails. The government seems to want us all to be at it all the time whereas what it should be promoting is a fair, consistent and transparent price structure. The only benefit I can see from competition among the major suppliers is that it squeezes out administrative and service inefficiencies [the bane of the old regional gas and electricity boards]. Even the simplified tariffs are more complex than they need to be with contract terms, exit penalties, fixed-rate deals, and such. It’s all become a gamble and we just don’t need it. The differential costs of energy transmission and supply don’t have to be translated into standing charges. I think I’ve said before that there is a case for every property paying a basic standard meterage charge set by the Regulator across the country but after that it should all be priced by consumption.

Guest

Thanks for making the point about the cost of switching, which all customers have to pay, whether or not they are the ones who are doing the switching. I trawled through earlier Conversations but failed to find a post where there was an estimate of the switching cost.

Everyone needs energy, so I believe that the energy suppliers should be under much greater control than most companies.

Guest
james says:
14 March 2014

forecourt pricing is not the panacea you think it is. customers will still need to know how many kwhs of electricity and gas they use to work out the cheapest and this lack of knowledge is half the problem.

the other problem with forecourt pricing is that people with second homes will be subsidised by people with families or the elderly or ill who heat their homes all day to the tune of £100 to £200 per year.

Guest

James – One of the advantages of simple unit prices is that no-one has to estimate their energy consumption. I don’t have to estimate how much diesel I use to decide where to buy fuel for my car.

We have well established ways of supporting those who have genuine need. I agree that those with second homes should not be subsidised but it is not difficult to see workable solutions.

With a standing charge, low users are subsidising high users, which is not fair. The complexity of current pricing demonstrates that the energy companies and Ofcom are doing little to help those who are not up to finding the best price.

Guest

Sorry, I do not understand that point at all. Why are low users subsidising high users? Standing charges reflect the fixed costs of supplying energy to a household, independent of the level of consumption. Even if you consume almost no energy you will still have those costs by virtue of having an active connection to the network.

A significant part of the fixed costs are due to the network providers and transporters like National Grid and Transco. They charge the energy providers for the use of their networks so part of the standing charge is passed on to them.

Supply of energy to your house is not directly comparable with filling your car with fuel (unless you’re referring to an electric car). Until you have a petrol supply pipe running to your house or you can take your house to a energy station for a top-up, then the comparison is misleading.

Guest

Standing charges have nothing whatsoever to do with the costs of supplying energy. If they did, the standing charge would depend, for example, on whether you lived in a densely populated area or in rural areas.

The costs of distributing petrol are included in the price per litre, so that the price is the same, irrespective of how much fuel we buy. That makes it easy to compare prices.

In the UK we have people who are really struggling to pay their fuel bills. They are low users because they have no choice. Thanks to standing charges they are paying more per unit than profligate users.

What I am suggesting is that we should consider those less fortunate than ourselves.