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

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.

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.

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.

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.

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.

That’s exactly what standing charges do do! They vary across the country. Suppliers do not charge the same amount across the whole country – your location is a significant factor in the costs.

Standing charges were common practice before the suppliers were privatised but were then increasingly replaced by tiered products. The first tier was more expensive to reflect the costs of supply but of course did not prevent customers reducing there bills to a low level by restricting their consumption. Standing charges are now back in use again because they were mandated by the government as part of their simplification drive.

Energy suppliers have less control over distribution costs than oil companies – they cannot choose which distributor to use and they cannot own the distribution network themselves. It is really more complicated than the supply of petrol.

Suppliers provide a lot of help for struggling consumers by running schemes like Warm Home Discount aimed at customers receiving Pension Credit or other benefits. Surely this is a fairer way to target help where it is most needed?

Dave b, Thanks for the information. Can’t find the printed article – which month please?

Dave b, found it online – my printed copy has not yet arrived! Just wondered what the annual consumption used was.
Frankly, I am appalled that so many people were unable to work out the annual cost. Perhaps it would simplify things if all standing charges were shown in £/year to save you having to multiply a daily rate by 365! If you can’t multiply two numbers together and add to another then it is a sad indictment of our education system. Even worse that some (18%) appear unable to even compare two numbers.
If elements of your energy bill are not related to consumption – examples given above – then ignoring them simply to make life easy means higher users (who are not by any means all profligate!) will pay an unfair contribution to these elements. This is not a reasonable approach.

Calculating your energy bill from different suppliers will never be “simple” because as well as the tariifs on offer, it will depend upon how much you consume, and when, and of course your attitude to risk.
For example
– do you choose a variable tariff, one fixed for a year, or 4 years? You have a choice. Do we not want to be able to choose?
– do you use, or could you, a significant amout of electricity at night when it is cheaper – so you could choose an economy 7 or 10 tariff. But you need an idea of your annual consumption at full rate and economy rate to work out whether this offers the best deal, and from which provider.
– smart meters offer the opportunity to buy energy at different rates at different times of the day, when in principle unit prices will vary, because of demand changes (electricity companies like to keep demand as constant as they can, so will boost demand at certain times by offering cheaper rates). You can only attempt to work out how this will affect you if you have a consistent history of energy usage at different times.
These examples all potentially bring cost-saving benefits to you, but will never be easy to predict. But if you opt for a single tariff at all times you will never benefit. Is that what we want – no choice?

The fact is, this is not a simple topic, and never will be. To attempt to force it into a simple form will distort the market and remove much of our ability to make a choice. Is that what we want?

We have an easy way of predicting our cheapest bills by putting our annual energy consumption into Which? Switch for example.

Malcolm R has clearly explained why a single unit rate is a bad idea; it will distort the market, it will remove choice and it is simply not a fair way to charge for energy.

As Malcolm said on 15 March 2014 at 6:26 pm:
If you have a single tariff then the more energy you use, the more you will pay towards the supplier’s costs and to the government charges. Is this fair? Because it is a fallacy to suggest that all users of more energy are capable of giving more financial support to these non-energy elements. Many will be the elderly – who need more warmth and are at home all day; larger families with less disposable income in larger houses; less well-off families in houses that are poorly insulated, difficult to insulate, and without the means to improve them; those with medical needs needing round the clock warmth and using appliances consuming power; people in poor-quality rented accommodation and so on.

Also, as he said earlier today, ‘The fact is, this is not a simple topic, and never will be.’

And energy suppliers are doing their best to ensure that prospective customer can understand their enrgy offers. Why would they do otherwise? It’s simply not in their interests. Misleading customers would mean more complaints, which would mean being downgraded on consumer league charts and more turnover of customers. The energy suppliers want happy customers because churn in the customer base is much more expensive than retaining customers.

Ofgem needs to ensure that all suppliers present their offers in a standard way that allows comparison of like-with-like. This does not mean forcing them into an artificial structure (like a single tariff) which would create an unfair distorted market.

Sorry Chis but I disagree. I think that consumers are a lot more important than worrying about markets.

I see that British Gas are now going to be offering free electricity on Saturday, which should add to the confusion.

Fairness is far more important than an artificial simplicity. Many people will be quite capable of choosing the supplier and tariff that suits them best. Those who are quite unable to do this can be helped – don’t penalise those who can.
We should be looking at other aspects of the energy market – removing government-imposed charges from individuals bills, removing VAT, and leaving just those elements that are directly related to your energy consumption. If some companies choose to offer you the option to pay for sertvicing your account with an annual sum, fine. If others choose to include it in their unit cost, fine. Consumers should have choices.
This has all been debated in several other conversations – there are clearly views worth taking account of on both sides of the argument so somewhere there is inevitably a compromise that can be struck – as is always the case when the answer is neither black nor white. What is surprising, and disturbing, is that Which? seems unable to assume a balanced and impartial stance that takes account of all views. It seems to have dug a hole for itself in promoting unit-costs only without having a ladder to climb out.

We are agreed that fairness is important. What is fairer than prices that can be compared easily, just like we compare the price of a litre of petrol or a loaf of bread?

To quote from the April issue of Which? magazine: “When presented with the standard tariffs of the big six energy suppliers, just 35% of respondents were able to pick the cheapest deal.” We need to consider all consumers and not just those who can do the sums.

We are just going to have to differ on this Malcolm. 🙁

Wavechange, this is not about whether you and I differ.
I think it is important to put the arguments and differing points of view in this debate in front of people so they can make their minds up – if they haven’t already – on the basis of information. Which? has not been providing all of this, and the result can therefore be a bit misleading to those who may not be wholly aware of what is involved – including myself.
I wonder how representative the sample of respondents was, and the conditions of test. I remain appalled at the thought that it implies 65% of Britons are numerically illiterate. That is not an excuse to artificially dumb everything down.
🙂

In the last couple of years I have discussed energy prices with many people and I have little doubt that Which? is right that the whole issue of energy prices is very confusing to many people. I doubt that Which? would be pursuing a campaign on energy prices if there was not a significant problem.

I very much agree that we should fight poor numeracy and dumbing down (and I spent my working life doing both in two well respected universities) but my view is that the top priority is to make everyday issues such as energy prices easy for everyone to understand. There is no need to artificially complicate matters. 🙂