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Why cutting the price of energy really matters

Fair energy illustration

‘I’d like to use my heating in winter and not just when people visit.’ That was only one of many comments we’ve had from the more than 203,900 of you who have signed our petition for fair energy prices.

This week the Government has written to the Big Six energy firms asking them if energy prices accurately reflect their costs after falls in the cost of wholesale energy.

Our analysis suggests standard variable energy tariffs have not kept in line with wholesale prices over the past two years.

The stories you’ve shared make it clear just how urgently action is needed. Here are just some of the comments from people who’ve told us how energy prices affect them.

Why cutting energy bills matters

Helen, from Southampton, said:

‘Gas and electricity payments represent over 17% of my income. I have a one-bed flat, do not own a TV, radio, toaster etc. and still my bills are too high for me to keep up with. I’d love to be able to shower and do the washing up every day, I’m terrified of the cost, so I don’t. How families with young children manage is beyond me.’

Garth, from Basingstoke, said:

‘I am retired and prices seem to rise at a greater rate than my pension.’

Alan from Blackwell told us that while he felt he was ‘a reasonably sophisticated consumer’, bills are incomprehensible and comparisons ‘nearly impossible’.

Kathryn, from Sheffield, said:

‘Although we check our prices every year there are a lot of older people who do not have the internet access we do and find it too hard to get the comparative information.’

What we think should happen

energy-billsWe did our own analysis of wholesale costs and energy bills earlier this year. We found that UK bills could have been £2.9bn lower over the last year (£145 per household).

We think it’s good that Ministers are acting, but we now need to see suppliers do the right thing and fast. Energy firms have totally run out of excuses for not cutting our bills. If they don’t play ball it will add weight to the case for the Competition and Markets Authority (CMA) to step in and force the energy firms to make bills fair.

The CMA is currently undertaking a wide-ranging investigation into the energy market to see if competition is working properly.

The Government’s Energy Secretary Amber Rudd said her focus is to get the best deal for consumers and the department is working hard to keep energy bills as low as possible.

How are energy prices affecting you? Have you switched suppliers and has this helped keep costs down?

Comments
Member

While I appreciate that Which? has recently filed a super-complaint about the pricing practices used by supermarkets, the energy industry is failing consumers in so many ways that another super-complaint is called for.

Member

Paul, I would also like to see energy bills lower. Would you explain exactly where you see the energy bills could be cut so we can understand where the savings will be made? Is it simply the link with wholesale prices?

Member

Hi Malcolm

yes,we want to see fair energy prices. Research we carried out in February found that the failure of retail prices to align with wholesale costs has cost consumers £2.9bn over the last year, an equivalent of £145 per household on standard energy tariffs.

Member

Can householders expect a refund or will energy prices be lowered to compensate for our overpayment, Paul?

Member

What we really could do with is a not-for-profit nationalized industry effectively controlled by a sensible government set on ensuring that everyone can afford to use reasonable amounts of energy.

If you see Sid, tell him…

Member

If the Which? analysis is proven to be correct by the CMA then consumers should receive £145 compensation for overpayment of their energy supply. After all the Banks were obliged to indemnify customers for their PPI `indiscretions.’

Member

The Which? analysis seems to concentrate on standard variable tariffs, not fixed price tariffs and states that “up to £2.9 bn” could have been saved (sounds a bit like broadband speed!).

Personally, I would like to see fixed price tariffs abolished – they just complicate matters – and have one unit tariff for gas, and one for electricity, from each company for the energy element in the bill and the associated consumption-dependent extras. Non-consumption-related costs should be dealt with separately and could lead to different offerings from each company to give choice, depending on your circumstances and consumption.

We need a real examination of all the costs involved to decide how to recover them from different types of consumers as fairly as possible. Hopefully the CMA will address this – have Which? made representations to them along these lines?

Member

Its going to be fun when TTIP is signed and all the foreign owned energy companies sue the Governement for lost profits under the ISDS provision.

What gets my goat is that Which? publish this:
Helen, from Southampton, said:
‘Gas and electricity payments represent over 17% of my income. I have a one-bed flat, do not own a TV, radio, toaster etc. and still my bills are too high for me to keep up with. I’d love to be able to shower and do the washing up every day, I’m terrified of the cost, so I don’t. How families with young children manage is beyond me.’

What the hell are Which? doing about her personal circumstances other than use it to evoke outrage? Where is the analysis of her income and expenditure? What are the suggested solutions for her one bed flat? Is there a structral flaw in the flat? Are the radiators working properly?

I campaigned to be a Trustee on the basis that Which? seemed to be lacking any practical application just talk and talk and appeals to various Govt bodies. Somebody is in trouble and what.?

Incidentally my energy bills are around 20% of my income and my rates a further 22% , my mortgage nearly 30 % .This just shows how misleading blind percentages are AND how annoying it is to have articles quoting them.

Member

dieseltaylor, I agree. It smacks of the sensationalist tabloid headlines that I have criticised Which? for in the past (but that’s just my opinion). I don’t want hyped-up campaigns, I want facts so that, given a balanced resume of the arguments, we can make our own (hopefully) rational decisions, not be led by emotion. I then want Which? to pursue a similarly rational and objective campaign when it is necessary. Regrettably there will always be people with inadequate money and those genuinely in need should be helped by the state.

Where is the campaign to get trading standards up to scratch to help consumers get proper redress from traders when they have real problems?

Member
Phil says:
3 June 2015

Which? could campaign for a halt in the roll out of so-called Smart Meters. Their effect on energy consumption will be negligible and the cost is now estimated to be £11 billion which is being added to customers’ bills.

Member

Spot on Phil, but notice how Paul Ryan of Which makes no mention of smart meters. It seems this £11 billion folly, and £11 billion we’ll be paying, has the support of Which. I have yet to hear from Which any plausible argument that “smart meters” will provide saving that warrant an £11 billion outlay. Probably because there is no argument. Smart meters will save you or I not a penny in them selves. Any savings, which will be short lived, will be achieved by the consumers themselves through lower consumption, until that is the “smart meter” novelty value quickly wears off.
Now this article talks about cutting the cost of energy, well obviously a good idea not to waste the stuff but with £11 billion “smart meter folly money” up for grabs I know where I’d start.

Member
Phil says:
4 June 2015

It’s not just an initial outlay. There’s no common standard so if you switch supplier chances are you’ll have to have the meter changed too so it’s a rolling cost that’s going to be hidden in our bills. There seem to be reliability issues too, a friend who has one is on his third.

Member

An £11 billion folly with a very short lifespan as software goes out of date and customers change providers.

Which? should be campaigning against a country-wide rollout if they want to save money for consumers.

Member

The most recent Conversation was last October. Search for: “The Government must urgently cut smart meter roll-out costs”.

It’s interesting to look back at the sequence of Convos about smart meters: conversation.which.co.uk/tag/smart-meters/

At one time it looked as if Which? might oppose the roll out of smart meters, but it appears that they are now regarded as inevitable and all that’s worth fighting for is a reduction in the cost to consumers. To the best of my knowledge, it is still legal to refuse to have a smart meter installed but I would not be surprised if suppliers will want to levy higher charges as compensation for the need to request meter readings and periodically inspect meters to check that supplied readings are not erroneous.

Member

Hi, many thanks for your comments.

The people we quoted in the Conversation were some of those who signed our petition calling for fair energy prices. We sometimes feature case studies such as these to bring an issue to life – such as how difficult some people are finding it to meet their energy bills.

We felt her thoughts reflected what a lot of people are feeling. Which? Convo is indeed a place where we talk about these issues, but at the same time we do provide practical help and suggested solutions for people struggling to meet their bills, for example through our consumer rights website and by helping people switch to a better deal.

Member

Paul – Which? is rich and to pay for an experienced person to go down to look at her circumstances I think is the least it should do given it is prepared to quote her. Is it that she needs to be guided to her Council, or Age Concern , Abbeyfield or sheltered housing?

Especially if you realise that in her case a few per cent of the energy bill is probably not going to be that significant given her present limited use.

Which? Consumer Rights is £43 to join which I suspect she has better uses for. Citizens Advice is free. As are switching sites.

Member

Paul, didn’t want to address the comments related to the potential savings through consumers not having to collectively stump up at least £11 billion for smart meters then?

Member

According to a report in to-days Daily Mail Online there are 260,000 more people in debt to energy firms than last year. 4 million UK householders collectively owe suppliers £567 million – up 9% from £464 million last year. The full report is @dailymail.co.uk – 260,000 More in Debt to Energy Firms – 3rd June 2015. The number of meters currently being installed for people who are unable to pay their bills is running at 1,000 per day. It is quite a shocking state of affairs when you read that people have to resort to turning a blind eye when they are unable to pay their debts to their energy supplier.

Member

It is very saddening – £2 increase in average debt.

“The average debt per household is £130, up from £128 last year, the poll suggests.”
” The uSwitch poll found 30% of consumers are choosing to “turn a blind eye” to rising debt in the hope it will decrease over time, while just 19% said they were able to pay it off in one lump sum.”

The poll was of 2,002 people.

SO does this mean that the headline from the Daily Mail is distorting the true picture. I am sure I have owed more than that on my DD plan and needed it adjusted. And as the poll showed if the 17% who could afford had paid up would we be seeing an exciting article on the big decrease in money owed? And of the people in debt down to 3.32million from 3.7m.

Surveys don’ you love them.? : )

Member

“This is evidence that energy has become totally unaffordable for millions of homes. Disposable incomes may be on the up, but people are still under relentless pressure just to cover the cost of essential bills.”

Well, I’m in debt to energy companies because of their direct debit policy to spread payments equally throughout the year, and clearly the winter has incurred the higher costs. I don’t regard that as putting me in the “unaffordable for millions of homes” category. Disposable income means you have surplus to your essential expenses. So I don’t see the logic of the conclusions drawn.

Member

Malcolm & DT: Has it now become a case of cant pay or wont pay? Either/or, do you relish the thought that you may be forced to have a pay-as-you-go meter installed and pay the extra costs incurred? Almost 204,000 people signed the Which? petition for fairer energy prices. Are you happy to be overcharged £145 for your energy supplies?

Member

Beryl, I simply want to see all the facts, and would not rely on a Daily Mail online article. These facts are essential to beginning to understand what “fairer energy prices” mean. Hopefully the CMA will explain this.

As far as pay-as-you-go meters are concerned, providing they do not involve any extra administration – and I assume buying a key/card top up does not – then they should be charged normal tariffs, which British Gas for example say they do. I still believe a single standard tariff without the complications of fixed price versions should be the norm.

Member

The linked article states: “Which? analysis discovers energy bills have not kept in line with falling wholesale prices, costing consumers up to £2.9 billion over the last year – an equivalent of up to £145 per household on a standard tariff.” It would be helpful if Paul could update his introduction to reflect this. It would be good if Ofgem could confirm that the claims made by Which? are valid.

When the Freedom of Information Act was introduced, I was dismayed to learn that it would not, in general, apply to companies and to charities. On the basis that so many companies are known to be treating consumers unfairly, it is high time that the FOI act was amended. I suspect we could learn a lot about the energy industry.

Member

Sorry, I did not explain that the linked article refers to UP TO £145, whereas £145 is used without this qualification in the introduction.

Member

Malcolm if you consider DM reports “unreliable” you may even be more convinced by @bbc.co.uk/ Ofgem to investigate “forcibly installed” pre-pay meters – 25th May 2015. On average you will be paying £80 more per year with a prepaid meter. More useful info can be found @citizensadvice.org.uk – You can’t switch energy supplier because of a debt. You may be considered “debit blocked” unless the energy supplier has increased its prices when you are given 30 days grace to pay.

There does not appear to be much legal redress for consumers who are owed money from energy suppliers who are disinclined to pay up although this situation seems to have improved following recent intervention by Ofgem.

Member

Apologies……….., that should read “debt blocked” not “debit blocked”

Member

Maybe we should all have pre-payment meters. It might promote a better understanding of some of the problems faced by some of our citizens.

Member

Beryl, if someone does not pay a bill then you can understand a commercial company taking steps to remedy that. It seems to me a prepayment meter may then be justified – otherwise all other customers are subsidising a non-payer. If you are in debt to an energy company the prepay meter will enable that debt to be gradually repaid. However, I believe that prepayment meters should be charged for energy on the same terms as anyone else. Why not? Fixed price deals are available apparently.

Now don’t conclude from that please that I have no sympathy for non-payers. Those who genuinely have problems paying should be helped, but that is the state’s job and not down to individual commercial companies.

It appears you can switch suppliers to get a better tariff if you debt is no more than £500.

Member

An inconvenience of prepayment meters is that you need to visit a paypoint to put money on your card or key. There is no need for prepayment if you have an acceptable credit record, as many energy users have.

Member

Those required to use prepayment meters are faced with various problems, such as it being difficult to switch to cheaper suppliers if they are in debt. It is time that we all start thinking about people less fortunate than ourselves.

Member

According to an energy company I looked at, as I said above, it seems possible to switch if in debt up to £500. This is where these conversations should be properly provided with facts from those who know so we don’t get bogged down in misconceptions.

Why do you keep remarking about ” time we all start thinking about people less fortunate than ourselves” as if regarding those who contribute information that may not accord with another’s view as heartless. I regard the state as the supporter of those genuinely in need as I said above. I do think about others but want to find a sensible solution. 🙂

Member

Malcolm there are numerous reasons why people are in debt to their energy supplier. You have quoted you, yourself above that you come into that category. The whole point of course being, if energy price increases were fairer (up to £145 less i.e.) and wholesale costs were passed on when prices come down, maybe there would be far fewer people being “forcibly installed” with prepayment meters.

There are always people who, for whatever reason, are unwilling to pay their energy bills and irresponsible people who choose to turn a “blind eye” but must always eventually expect to take the consequences of their folly, but the reality is, there are still many people who are unable to afford to pay for what amounts to be an essential commodity to survive and are far too proud to take the ultimate self demeaning steps to apply for social hand outs.

Member

Malcolm – I understand that the £500 debt threshold only applies to the larger energy suppliers.

Member

It is impossible for energy bills to faithfully track wholesale prices so long as a significant proportion of the bill is made up of levies and surcharges. To the extent that most of these are percentages of the energy charge there will be an element of tracking but since the government requires the same amount of revenue notwithstanding energy price fluctuations there would be a tendency for these demands to rise as a percentage of the bill if the cost of energy falls thus diluting the decrease. The 5% VAT on energy bills complicates the situation further due to its compounding effect as being a tax that is also levied on a surcharge!

It’s tempting to look back to the days of coal fires when you just paid for what came out of the sack and could choose whether you had the best Coalite ovals or a load of nutty slack [and it was cheaper if you stockpiled it in the Summer for use over the Winter season]. The coalman’s horse also delivered manure for no extra charge; some people put it round their rhubarb but I preferred custard on mine.

Member
Phil says:
4 June 2015

Another question Which? could address is whether we really are getting a better deal post-privatisation. Would we be better off re-nationalising our utilities so profits are re-invested rather than being divested as management bonuses and shareholder dividends. That way at least they’ll be some chance of infrastructure being developed to a national plan rather than the piecemeal approach and the illusion of competition we have now. I don’t know how much electricity cost pre-privatisation, this is a crude comparison I know but the earliest bill I still have is from 2003 and I was paying 5.96p per kWh which in today’s prices is equivalent to 8.41p but I can’t find a supplier offering less than 10p.

In the meantime utility companies need better protection, Thames Water has already fallen into the hands of a private equity fund which last year paid itself a bigger “dividend” from the company than it made in profits. It can only end one way.

Member

Phil – There are so many factors involved that it is impossible to make a meaningful comparison. Though the companies are making substantial profits, they may be operating more efficiently than before privatisation. One thing we can be sure of is the fact that post-privatisation, other countries now have a significant input into our energy industry. I don’t understand why this was allowed.

Member

Phil, I believe that the energy distribution network providers – the pipes and wires – which are regulated by Ofgem now operate far more efficiently (i.e. at lower cost) than before privatisation, It accounts for about 26% of an average bill

Member

I believe the supply of energy is much more cost-efficient now than it was under the nationalised industries and cheaper in real terms so long as we strip out the government levies that have been imposed on top of the charges for gas and electricity. Imperfect though it may be, competition has had a beneficial effect on both price and service quality. Nevertheless, further structural changes are required to improve competition and to isolate the electricity generation and gas production functions from the retail supply side to create a more even-handed market.

Member
Phil says:
5 June 2015

I did say it was a crude comparison but if the sector is being run more efficiently then surely these savings should be passed on to consumers. This doesn’t appear to be happening.

Member

Beryl –

I am not heartless and yes everybody wold be better off for £145 rebate . Give me the address or contact details and I would travel to help Helen. Standing-by doing nothing constructive is a big sin in my book.

Believe me I have a great deal of understanding for the poverty stricken as in my younger years I would be perpetually dealing with many customers who were overdrawn, or excess of limits, or needed to borrow money for small expenses.

The great thing about Banks in those days was it was not computers making the decisions but human beings. However consumer forces made banks less profitable and human decision makers were replaced. In fact the formula for lending was changed to max out peoples ability to service borrowing – further than most bank employees would recommend.

In my experience, and I doubt humans have changed, there are a percentage who are completely gormless about money. They be intelligent but still unable to budget or resist splashing the cash.
For those the discipline of the Bank and the budget account forecast were a godsend. Rarely did we have customers who simply were in circumstances beyond redemption.

We did have people who had assets or for which a change in life style would solve their problems. The assets situation would often be elderly in a house they could not adequately heat or upkeep who would not countenance moving to solve their problem.

I would try my darndest to solve their problems becuse solving problems is what I like to do. Making happy customers was always good. I have dealt with thousands of peoples finances mostly when they have problems. This is useful when looking at stories of poverty to realise we are not seeing all the facts and that what we read may conceal more than it reveals because the writer is looking for emotional reaction not reasoned thought.

Member

DT I am all too familiar with bank practices as my late son, who was branch manager at one of the big four high street banks before the crash, used to relate some of the predicaments that people can find themselves in. However, when monetary decisions were transferred to the computer, it took away much of the emotion and responsibility away from banking staff. Sadly this did not prevent the indiscriminate lending practices that led to the predicament we found ourselves in over five years ago and the ensuing austerity that followed, but I do understand your apparent need to require evidence before acceptance, that working in a banking environment necessitates.

The topic is about energy prices however and whether people are receiving a fair deal. I would certainly welcome a £145 reduction in my annual energy bill. I do acknowledge the whole energy market system is in need of total reform. The CMA hopefully can soon deliver a more simplified and less complex solution so that ultimately each and everyone receives a fair deal according to their own particular circumstances.

Member

Getting back to the topic “Why cutting the price of energy really matters” well of course it matters. I cannot think of any circumstances where it wouldn’t matter, can anyone?
The article also says there is a question if competition within the energy market is working properly, and asks if anyone who has change supplier has saved money.

Well I’m practically a serial switcher. I’ve tried 5 of the big 6 before going to one of the smaller suppliers, so I do know a little about potential savings through switching.

Facts of life are if you’ve never switched when you do you will almost certainly save significantly so do it. However on your second switch onward your savings, if any, will be very small.
Reasons are that on the first switch you’ll be leaving some very old tariff your supplier was quite happy to leave you on and take your money. Second switch you’ll move to a much more competitive tariff and the most competitive tariff each supplier offers varies very little one from another, so switching from then on savings becomes quite small and relatively pointless other than if you make customer service the deciding factor. Good enough reason to change so you deal with someone not an incompetent idiot, but good customer service in itself doesn’t actually save money.

So is competition working? not really.
How can we cut energy prices? Get rid of standing charges and smoke and mirrors tariffs so we can easily see which supplier is best through simple unit pricing. Also get rid of the levies we all pay on our bills for “green subsidy items”. If these green items are important they are important to everyone so put the levy onto normal income tax. It will then only be paid by those who have an income and can best afford to pay, proportionally to that income.

Not that difficult really is it?

Member

Pushing the “green subsidy items” off the fuel bill has to be the top priority. We would be able to see the cost/benefit ratio of different tariff structures for different consumer situations much more clearly then. I should really like to see a proper economic analysis taking a number of lifestyle scenarios and applying the alternative tariffs to see which might be the most suitable. I think we have to get away from the stereotypes around standing charges and generalisations about their affect on people with different income levels. As with removing the regressive levies from the energy bills, it is not the job of the energy market to get engaged in the redistribution of wealth. People need a choice and I don’t believe there is a “one size fits all” tariff for energy. It has been said that standing charges disproportionately benefit high users who – conventionally – are seen as the better-off, but a lot of lower-income people are, of necessity, high users and should not be disadvantaged. The important thing is to have equitable tariffs. I think Ofgem has a lot more work to do on that. If one takes the reductionist argument too far all companies would charge the same rates, there would be no competition except in administrative efficiency which would favour those with the largest number of customers, and eventually the smaller companies would be wiped out.

Member

Thank you Chris for the benefit of your experience. It is refreshing to hear from someone who has really investigated and carried through on the switching experience. We have only done it twice.

I agree wholeheartedly that change is required. Clarifying what people are actually paying for would be a great start. As you point out everyone benefits from the green levy so lets lose it in taxation.

As for standing charges folding them into unit prices is folly as larger uses may not be wealthy users and I will be darned if I am going to pay for people with holiday homes, or landlords with multiple houses, or “dinky”s where they are well-heeled but rarely in. Means test and pay it for those who need it.

Making people aware of real costs is actually educational but it seems to suit some media to look at gas prices and portray it is a straight translation in percentage terms to reductions. About two years ago everyone was moaning how awful energy prices were but no one wanted to point out that compared to most of Europe our energy is cheap. And for all I know it may still be.

Member

dieseltaylor, DECC data for domestic gas show that for July-Dec 2014 out of the EU 15 countries: for low users UK ranks 6th lowest, 12.7% below the median; for medium users UK is 2nd lowest, 17.2% below the median, and for high users it is 3rd lowest, 17% below the median.

Member

So would you agree that high petrol users might not be wealthy users either? they might be people who just have a long way to commute. So following your argument if they paid a standing charge to the petrol station that would be ok would it? No of course not. Likewise standing charges on energy bills are an equally ridiculous con, and all part of the smoke and mirrors way of selling you something you think a good deal but what is in reality a very poor deal. There is no defence for standing charges otherwise petrol stations and supermarkets would be at it too, after all they too have fixed costs. It’s just it seems that some think energy sales are something different, I don’t.

Member

Chris, there is a fundamental difference You have a contract with an energy company for sole supply direct to your house. You do not with a petrol station or a supermarket. Because one does it one way does not mean that is therefore the only way to do it. If you don’t want to pay a standing charge you can choose a unit-only tariff. The key is fairness and choice. I do not want to subsidise better off users who use little energy. Why should I?

Member

malcolm – thank you so much for the figures showing that the UK is paying less than most of the EU for it’s gas energy. It adds so much to a discussion if one can compare and contrast how other markets operate and to establish why the energy cost differential exists.

If we are paying less for gas than most of Europe is it the other items on the bill – particularly the green levy – that is the easiest solution for lowering consumers costs is to remove it.

Standing charges could be avoided by people moving to LPG and going to depot to collect the cannisters or to have it delivered by lorry. They could then easily shop around for the cheapest offer when another cannister is required. Obviously costs of collection or delivery and storage make it fiddly but standing charge would be avoided.

Member

The Energy Ombudsman has to-day released complaint figures for the first time, with Scottish Power the most complained-about firm; the Energy Ombudsman plus Citizens Advice broadly match up with Which? Of the Big 6 SSE came out best and SP worst.

Member
Ian Curr says:
10 June 2015

I want energy firms to be obliged to sell fuel in the same way as petrol and diesel retailers, i.e. by unit energy prices only. Energy companies would advertise their prices in pence per KWh just a petrol is sold by pence per litre. This would eradicate confusing tariffs and make it transparent what the cost is between suppliers. Snergy companies should only be able to adjust their prices quarterly – after all, they buy their fuel well in advance so that shouldn’t be a problem.

Member

Ian, this would not reflect the costs involved in buying energy and would indiscriminately distort bills. Poor people would subsidise well-off, and vice versa. Only the winners would like that!.

Energy bills currently consist of items that are consumption dependent – the actual raw energy (less than 50% of the bill) and the costs of carrying it along the pipes and wires. There are then costs that are not consumption dependent – meter reading, billing and admin costs, maintenance of connections and then costs of the smart meter roll out. Then there are more “in-between” costs – the government charges / levies imposed on the energy companies, that are passed on to consumers.
So it is not simple, but quite clearly a bill, if fairly applied, will include a cost depending on the amount of energy used, and a cost reflecting those fixed costs that apply to all consumers. This cannot be fairly done if you just have unit costs only.

Member
Phil says:
10 June 2015

Although the law requires all energy suppliers to have a Standing Charge many use a loophole in the regulation and set the Standing Charge to £0. Otherwise it’s nigh on impossible to work out if the company with the low KWh price and the higher standing charge represents better value than the one with the higher KWh but lower Standing Charge.

Suppliers usually buy electricity and gas from a third party producer, who may not even be in the UK, on long term contracts. As with everything else the price charged to consumers is not tied in closely with the cost of production and transmission but set to what the market will support or in plain language whatever the suppliers think they can get away with.

Member

Phil, it is not a loophole. Ofgem, in restricting the number of tariffs, requires all suppliers to include a standing charge, but they allow that standing charge to be zero.

You make your decision about who to buy energy from perhaps once a year, so the very little effort required in choosing the best for your consumption is worth spending a few minutes on – with most of the work done by a website such as Which? Switch. Comparisons are easy.

Member
Phil says:
11 June 2015

Well if suppliers are required to have a standing charge but can set that charge at £0, ie effectively not have a standing charge, then the regulation is useless.

Member

Not at all, it simply allows them to also offer a unit price only tariff if they wish. Just a wording issue I presume.

Member

Hi Paul – You have mentioned that Which? has calculated that consumers have effectively been overcharged by £145 per household. Is there any chance we will get our money back?

Member

Please could someone in the Which? team let us know if customers can expect a refund to compensate for overcharging or whether prices will be adjusted to compensate for it. Otherwise we must assume that the companies have got away with delays in passing on the benefits of a fall in wholesale costs.

Member

Is this not something the CMA are considering?

Member

The initial CMA report on energy markets has been published today. https://assets.digital.cabinet-office.gov.uk/media/559ad883e5274a155c00001b/EMI_PFs_Summary.pdf Informative, well written and with interesting points made in my view. In particular it reiterates peoples stickiness in changing from standard variable tariffs, it criticises Ofgem’s introduction of only 4 tariffs, and it interestingly highlights Ofgems apparent reduction in focus on competitiveness initiatives for other issues.

Member

To quote from the CMA report: “The survey results suggest that there is a material percentage of customers who are disengaged in domestic retail energy markets. The survey results also suggest that those who are have low incomes, have low qualifications, are living in rented accommodation or who are above 65 are less likely to be engaged in the domestic retail energy markets against a variety of indicators of engagement. For example, 35% of those whose household incomes were above £36,000 had switched supplier in the last three years, compared with 20% of those whose household incomes were below £18,000, and 32% of those with degree level qualifications had switched in the last three years compared with 18% of those with no qualifications.”

I am not surprised to read this. Those who don’t switch for whatever reason are subsidising those who regularly switch to lower their energy charges. I would like to see stability in energy pricing so that those who – for whatever reason – do not keep an eye on energy pricing are not disadvantaged. There’s far too much of an ‘I’m alright Jack’ attitude in this country.

Member

I see no reason why we need standard variable tariffs and fixed price tariffs (which effectively ask the consumer to guess at future wholesale energy cost changes – something they are in no position to do in an informed way). So back to basic tariffs that are linked more directly to costs, and that do not give such large differences. I was, and still am, in favour of of the previous selection of tariffs: unit cost plus standing charge, two tier tariff where the first units recover fixed costs, and unit-only tariffs. The consumer can then choose which tariff suits his consumption pattern best. No doubt consumers will need active help from someone – their energy supplier for example – to suggest the most appropriate tariff for them. Or maybe you don’t actually choose a tariff – just a supplier – and at the end of each year your supplier simply calculates what your best tariff would have been and gives a rebate if necessary.
Nonetheless, some consumer involvement is necessary – just like choosing a best buy in any commodity. Perhaps a national independent price comparison site which checks your usage with your existing supplier and suggests your best deal. You still have to engage to some degree – we can’t do anything without a bit of effort, can we?

Member

I am not convinced that consumer involvement should be necessary to deliver an essential service such as energy.

I don’t think my three nearest neighbours are engaging much at the moment. One lost his wife a couple of years ago and has not got over it. He put up his house for sale at Easter, having realised that he cannot cope with the large gardens on his own. It was sold yesterday and now he has to move home to be nearer his son, and have necessary modifications carried out. The second neighbour is preoccupied with his wife, who is now in the third hospital, still partially paralysed as a result of food poisoning more than two months ago. The third neighbours have not got a clue about anything financial, though they have been wonderful parents and extremely helpful to me and others.

There is absolutely no reason why anyone should have to shop around for the best energy price in a civilised society. At least with food, many basics are sold at much the same price, at least in the main supermarkets.

Member

How then do you suggest we provide energy? No competition at all – everyone charges the same? Food is just as essential as energy – do we not shop around for that either? Some items are advertised at matching prices but the overall trolley will vary from shop to shop. And overall it probably costs 4 or 5 times the price of energy.

Member

All companies charging the same would certainly make for a fairer society, Malcolm. The more astute could choose their supplier based on how different energy companies are run, for example a sensible approach to renewable energy, customer service, clarity of billing and so on.

As I said above, many food basics are sold at fairly similar prices. The Which? super-complaint may help to put an end to put an end to practices such as pushing up the price of single items to offer a discount on multi-buys. I’ve given the example of Tesco selling one cucumber for 90p and two for £1 when the usual price is 49p or less for a single cucumber. We really need to think about people who don’t have much money.

I’m only concerned about essential goods and services. With luxury goods and non-essential services I have no problem with competition and haggling.

Member

“The more astute could choose their supplier…” The evidence is that most people don’t bother. Charging the same is likely to be anti-competitive – again, the last thing we need. We had that with nationalised industries – it didn’t work in the consumers interests.