Why cutting the price of energy really matters

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

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?

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?

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.

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.

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.

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.

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.? : )

“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.

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.

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

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

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.

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.

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.

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.

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. 🙂

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.

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

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.

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.

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

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.

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.

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.

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.

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.

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.

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?

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.

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.

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.

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.

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.

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

Is this not something the CMA are considering?

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.

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.

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.

“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.