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EDF Energy – we support simple energy prices

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Which? is calling for simple energy prices to end confusion and make comparing tariffs easier. In this guest post, Martin Lawrence from EDF Energy explains his support for a single unit price.

I know that working out which energy supplier offers you the cheapest deal can be confusing. Instead of taking a few seconds, comparing prices means having to do some serious homework.

How have we got ourselves into such a state? Well, it’s largely because not all suppliers use the same methods for calculating the cost of the gas and electricity you use. Today energy prices are set regionally, with some suppliers charging a daily standing charge (which can vary from tariff to tariff) and a price for each unit of electricity and gas consumed.

Other suppliers operate a more complex ‘two tier’ pricing structure, where customers are charged a lower unit rate once they have used a certain amount of energy.

Given all these variations, it’s not surprising that the customers I speak to tell me they want simpler prices. And they’re absolutely right.

That’s why last year we scrapped two tiered pricing – replacing it with a small standing charge and a unit price. We also now offer just two types of energy tariff: fixed and standard variable.

Taking simple prices to the next level

Now we think the energy industry needs to take a bigger and bolder step to make it easier for customers to get the best deal.

Like Which?, I believe standing charges and tiered pricing should be scrapped and replaced with one single unit price. This means customers could compare energy prices at home as easily as they can compare petrol prices on the road. There would only be one price – the unit price – to compare between different suppliers, making it simple to select the cheapest tariff.

EDF Energy is the first major supplier to support single unit pricing. That’s because we believe it’s time to end confusing and complex prices once and for all. Consumers would benefit by being able to pick out the cheapest deals – while suppliers offering the best prices would gain by winning more customers. There would be no hiding place.

A change to single unit pricing would undoubtedly make it easier to compare prices, but it would also change how bills are calculated. Low energy users would pay less because they would no longer be paying a standing charge. People using relatively high amounts of energy would pay slightly more. The government can help suppliers identify vulnerable high-consumption users, so we could target them with energy efficiency measures and offset any modest increase in their bills.

Energy suppliers must act together

Single unit pricing can only become a reality if all the energy suppliers act together – adopting the same model so consumers can compare prices like for like. No one company can act alone.

We believe that the regulator, Ofgem, would also need to create a central ‘clearing house’ to eliminate regional cost differences. These exist due to the varying cost of distributing energy to different parts of the country. Sweeping away the complex pricing structures which confuse customers is a big step and an essential one. So we now call on other suppliers to join us and remove tariff complexity once and for all. The message from customers is loud and clear. They are calling for change and energy firms need to listen and take action now.

So, there are obstacles. But I know these can be overcome. The energy industry needs to win back the trust of consumers with deeds rather than words.

Which? Conversation provides guest spots to external contributors. This is by Martin Lawrence, managing director of Energy Sourcing and Customer Supply at EDF Energy. All opinions expressed here are Martin’s own, not necessarily those of Which?

Comments
Guest
Allan says:
15 June 2013

Well done to EDF for putting customers first. I think it’s a great idea.

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Guest

It is going to be an uphill battle trying to win the trust of consumers, Martin. With fuel prices rising fast, it is inevitable that there will be criticism of all suppliers and there is not much that can be done to comfort the customers that have to meet these rising costs.

I hope EDF and other suppliers monitor this and other websites to learn how members of the public view their energy supplier. Not all the comments are negative.

Single unit pricing will be very helpful and until this happens, it is important that customers are told by their supplier if they could save money by switching to a different tariff, rather than waiting for them to ask. I believe that energy suppliers are now required to do this but I am not convinced it is happening.

There is considerable concern about how energy companies are dealing with pressures to move to renewable energy sources, and even more about how much this will cost. There has been considerable investment in wind power despite its intermittent nature and it is fairly obvious that an integrated approach is what is needed to use renewable energy sources effectively. This is perhaps the best example of the need for transparency in the energy supply industry.

The roll out of smart meters has generated considerable criticism on Which? Conversation. This may be driven by government or the EU, but we need the support of our energy suppliers to delay the roll out until the huge cost and concern about security issues have been properly investigated and that the smart meter will still function if they switch energy supplier. In the meantime, I do not see a problem with individuals paying for a smart meter.

My personal hobby horse concerns energy companies keeping customers in credit and this has been mentioned by various people contributing to discussions on this website. For years I have paid for energy by monthly direct debit and this has been routinely increased, allowing me to build up a substantial credit balance. Every time I called my supplier (not EDF) it was easy to get a refund payment or to cancel the planned increase in direct debit, but some people have not been so lucky. All I want to do is provide meter readings when requested and pay for what energy I have used. If this is not an option because of the costs in administration, then I might be prepared to accept this, but no-one has ever told me this. I can appreciate that for some people it would be better to build up credit in the summer months to cover heavy winter use, but some of us would prefer our money in our banks, not in the bank of our energy suppliers.

Thank you for support of the single unit price and for contributing to Which? Conversation. I hope you can spare the time to make further comments and perhaps answer a few queries.

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Guest

Ok Mr. EDF this all sounds good. Now put your money where your mouth is and just do it.
You won’t win back trust by only talking about it, by just saying what you think consumers want to hear. Actions speak loudest.

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Guest

I think we have to defy the major energy suppliers not to follow EDF’s lead as a first step. Easy switching is the way to put the power back into consumers’ hands. If just one or two of the majors would sign up to the same policy as EDF the others would probably have to fall into line for commercial and “corporate social responsibility” reasons. After all they can’t keep banging on about how responsible they are, and how they are always putting the customer first, and then ignore such a good example of how they can put words into deeds.

Which? is recognised throughout the UK as the expert body on consumer issues. So if Which? says it is a good thing, then it is a good thing. If Which? says the behaviour of the other energy companies is bad for consumers then they must accept that they are out of line. So long as price collusion is avoided, there will still be competition for our business and there is more – although not much more, I admit – to energy supply than the unit price [like customer service, billing comprehensibility, payment facilities, product bundles] which will enable consumers to make suitable choices.

It was reported on the BBC News website today that “the energy regulator Ofgem said the proposed scheme would not be as easy to implement as it might appear. This was because of the number of payment options and special “dual fuel” packages that currently existed.” I think Ofgem are introducing objections to EDF’s proposal because it does not fit exactly within Ofgem’s template for simplification of energy supply tariffs. There is no reason why the standard unit price – the headline rate – cannot be declared and then customers can attract various offsets or discounts depending on how they pay their bills, how many fuels they take, whether they do on-line meter readings, whether they have a smart meter, whether they sign up for a one-year/two-year/longer term contract, the level of exit penalties, whether they will pay as they consume [so never in credit or debit] or have a standard monthly payment, and so on. There could be competition on these elements so people could easily work out what suited them best. In a previous conversation, one of the regular contributors [whose name I cannot quickly find] suggested that there should be a national tariff adjustment day and that – unless the regulator approved otherwise and universally because of substantial wholesale price changes – no further alterations in price would be permitted for twelve months. I think that would be one of the best things that could be done to protect consumers and establish a level tariff platform. Such controls should also apply to the off-tariff elements that I mentioned above to stop companies making up on the swings what they were losing on the roundabouts. Perhaps it smacks of too much central regulation, but with computerised marginal rate manipulation and a multitude of peripheral prices driving consumers crazy, the suppliers have asked for it.

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Guest

Ofgem’s proposals for reduced tariffs already include both unit cost only, and unit cost plus standing charge. So EDF is only offering it seems one of these options. It is a smokescreen to suggest that it is too difficult to compare your annual predicted bill if you can be bothered to make the little effort (how long does it take using Switch with Which to check your best supplier and tariff?).
I use above average, like many people, not for reasons of profligacy but for sound reasons. I have made all reasonable energy saving measures but for medical reasons use more electricity and gas for heating. Others have family homes, homes that can’t be well insulated, all variations that have been stated in previous conversations.
All I want is the choice to find the best deal – I do not expect to be penalised because I use more energy than average. And at the moment my best deal has a high standing charge.
Which has never put the counter argument for alternative pricing structurers, but no doubt Ofgem does have reasons for including, for example, a standing charge option. A pity those reasons are not publicised so at least we have a balanced discussion.
I’d also be wary of an energy company coming out in favour of one pricing method and challenging their competitors – they are there to make a profit, not to be the customer’s best friend.
The “big 6” dominating the market is one of the real problems – opening the market to more competition will be most likely to produce better results for the consumer.

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Guest

I don’t understand why we have to pay a standing charge, that just makes the price higher for low users. Most low users are pensioners on low incomes and can ill afford energy prices, The only acceptable reason for keeping a standing charge is for properties not using any energy but not having the supply cut off. Second homes and empty homes.

Scrap the standing charge and have one unit cost.

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Guest

I think standing charges are necessary for fair prices; why should larger households subsidise smaller users. I dont believe most low users are poor pensioners , householders who are “in” all day use more fuel than those out (at work) all day. The low users are more likely to be single working households.

Having a standing charge need not make it more difficult to compare suppliers, a compromise would be to have an agreed national fixed standing charge across all suppliers.

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Guest

rarrar,

“I think standing charges are necessary for fair prices; why should larger households subsidise smaller users”?????
Or you might say; why should smaller users pay a standing charge and subsidise larger households?
A standing charge whereby you pay even before you use any energy, whereby low users who are low users for whatever reason subsidise high users is most certainly not fair.
I completely disagree with your argument that a standing charge is necessary for fair pricing. You are in my opinion 180 degrees out, and completely wrong.

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Guest

Chris, no one is completely wrong. In addition to the cost of the energy provided, suppliers also have to pay certain fixed costs – to the Government to fund environmental costs, to fund the infrastructure that provides everyone connected, to provide your meter, and so on. The argument (which is neither right nor wrong) is whether all those who benefit from a connection should contribute to these costs, and how much. You all should pay for your meter, and in my view for the environmental costs (as we all are supposed to benefit) and in some degree towards the infrastructure and distribution. At present that is funded either through the unit cost (which includes some contribution) or by paying a fixed annual cost as the contribution and a slightly lower unit cost.
You could argue that those low users are being subsidised by the higher energy users in relation to these other costs.
My view is to leave the choice with consumers and let them pick the tariff that gives them their best total bill (best in this context is perhaps not the most appropriate description!).
I would have though we were all looking for lower bills. Tinkering with the tariffs is not likely to do that – more genuine competition could, as could more scrutiny of the big 6 pricing and practices. You could question, for example, why over the last 2 years the UK has seen electricity prices increase by 23% – only two other EU countries were worse – and gas by 38% (only beaten by Spain). Sorting our supply prices out is far more important then the politics of tariff at the moment.

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Guest

Malcolm R
I agree when you say “tinkering with tariffs won’t automatically give us all lower bills” but simplification of tariffs will allow us to better compare suppliers. At the moment the level of standing charge to cover what is supposed to be a “fixed” cost varies with different, and even the same, supplier(s) as frequently as there is an R in the month. So any standing charge is clearly a marketing tool.

And why should a privately owned energy supplier be allowed to impose a standing charge? Why should they expect to collect money before they even sell a single Kwh? I and many others with small businesses wish we get away with that. All businesses have fixed costs and many businesses are subject to Government imposed regulations that make extra work for us.

Your comment “to leave the choice with consumers and let them pick the tariff that gives them their best total bill” Well ok, but buying energy should not be an obstacle course or a test of mathematical ability, we should all get a fair deal high users and low users with neither subsidising the other. Having said that surely if there are “add ons” imposed by Government in the form of green levies or whatever the cost should increase the more of a finite (perhaps climate damaging) commodity you feel you need to consume.

Where I do agree with you is where you say we should scrutinise more the big 6 pricing and business practices and question why our bills have increase by much more than most other EU countries.
I would suggest however that general price level is a slightly different argument. This conversation is about the rip off smoke and mirrors marketing tactics of tiered tariffs and standing charges. Which it seem even EDF, one of the big 6, is starting to wonder about, even if right now it’s just talk rather than action.

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Guest

Chris, first, use a comparison site – e.g. Switch with Which – all you need is your annual spend or consumption and you don’t have to worry about the tariffs; this will do the work for you. However it really doesn’t need a mathematical genius to work out a particular tariff for yourself.
You say rip-off marketting; I’m no fan of marketting but a choice of tariffs allows you to pick the best deal for your circumstances from the comparison site (or telephone) – just ignore marketting.
Do you think bills will generally come down by tinkering with tariff rules? The big 6 will want to maintain their profit margins, so no. We need to concentrate effort on reducing costs, not shuffling them around. Perhaps Which could campaign for this.
If EDF want a unit price only, and they give the majority of consumers lower bills, good luck to them. But why must they require all the other companies to do the same? Suggests they are not confident about the outcome otherwise?

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Guest

I think Malcolm we both probably want the same thing ultimately, that being lower overall prices and what each of thinks is a fair deal.
Where we must agree to differ, because nothing you’ve said has changed my mind, is on how we get there.

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Guest

I was going to mention my 1.2 litre car and my neighbours 4.0 litre tank. We both pay the same amount per unit for our petrol and that is fair. If I use my car much more than someone with the same size car engine, I will pay more.

A larger household will use much more energy and nobody is subsidising anyone if their is only a unit price,

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Guest

Well done EDF great to see someone is thinking clearly.
We have changed suppliers twice in the last 8 years, once because a pretty sales lady called and my husband agreed to listen to a sales pitch, the second I changed for £2 a month less. It probably cost more than that in administration charges. I still don’t know if the deal was better in the long run.
Standing charges are a good way to cover your overheads, so meter payments are only for energy production, it would be interesting to see those totals on a balance sheet.

I wont be looking for cheaper deals my calls to the Companies involved them calling me and having to tell lovely people that I no longer wanted to deal with them.

Cheaper bills come only if you reduce energy consumption, by lifestyle changes or by technology. Every home is different in its energy usage, one price seems to me the right way to go. I like the simple easy to read bills.

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Guest

I am an EDF customer on a fixed tariff until 2014. When I get to that point if two suppliers appear to offer the same charge for my estimated usage and one has a unit price only and the other a standing charge+unit price, I will switch to the one charging by unit price only. The suppliers can and do build their overheads into the unit price.

One price should mean one unit price, and not one unit price + standing charge.

Guest
Em says:
16 June 2013

What about your customers who are on off-peak tariffs and rely on electricity for all their needs?

Am I going to heat a house and hot water on standard price electricity?

Or are you going to bring gas into the areas where there is currently no supply?

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Guest

Well said Martin Lawrence, Managing Director at EDF.I look forward to your company introducing unit pricing only tariffs as soon as possible. If you put into practice EDF will be at the top of my list of choices for my next energy provider..

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Guest

Thank you for all your comments and for getting involved in the debate. Some of you have asked why we wouldn’t introduce single unit pricing on our own. The answer is that it would only work if all suppliers adopted the same model so consumers could compare prices against the same measurement.

If we introduced it alone, it would simply add to the confusion around energy prices – as it would be almost impossible for people to compare our prices with those of our competitors. The last thing consumers want is another competing pricing structure. We should instead push for one system that everyone understands and every supplier signs up to.

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Guest

Thanks for returning to this Conversation, Martin.

I very much support simplifying energy prices but wonder if there is an opportunity to make electricity available more cheaply at times when there is surplus generating capacity. Some domestic users benefit from off-peak energy prices but perhaps it is time to make cheaper electricity available to everyone at times of lower demand.

What I have in mind is a scheme that all energy suppliers agree to, otherwise it would introduce confusion. If customers know when electricity is cheaper then they may wish to change their usage pattern accordingly, as those who generate their own power with solar PV tend to do.

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Guest

Never mind the excuses if you really want to take this positive step forward and regain some consumer trust then just do it.
It won’t make comparison more difficult.
It won’t add confusion to the market.

Your prices will be simple to quantify, we only need to unravel the confusion caused by other suppliers and their smoke and mirrors complex tariffs, a situation we already have. And if the comparison is always being made with EDF you’ll always be in the equation, will win business and all the others will follow.

So where is the problem in you being the vanguard towards simpler and fairer pricing?
Unless of course your words are not quite as sincere as you would have us believe?

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Guest

I would like to know how gas prices are calculated, I have never really looked at the breakdown thoroughly until now. I am in the process of analyzing my gas bill to see just how much I am saving with my Klimat K2007 installation and my Scott Solar panels savings. I haven’t tackled the electricity yet.
I am experienced in complex reconciliation, but this is leaving me confused. the split Kwh has differing percentages from 15% to over 50% , sometimes the larger percentage is the higher cost reading sometimes the higher percentage is the lower cost reading. Sometimes there is no split charges.
An estimated bill bears no resemblance to the following actual reading., charges change as do the breakdown. EDF is amongst the three Companies I am working on.
If we can really see what is happening with clear readings, it would be encouraging as to me at the moment I feel as though I am not getting the correctly charged, and figures picked out of the air.

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Guest
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Guest

You may be interested to read SSE’s perspective on single unit pricing, along with a detailed response from our Fiona Cochrane.

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Guest

Fiona has a better understanding of the issues than SSE. Keep up the pressure Which?

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Guest

According to Fiona Cochrane, in concerns about finding the right energy deal “57% (of people) were not even able to find their energy bill”. In the online Which poll so far, “Do you know where your most recent energy bill is?” out of 171 responses 84 are paperless (so presumably most or many know where to find it), 70 say yes, 8 say no.
So how do these two tally? Or is Which being a little selective in trying to bolster their case?

In stating that it is easier to choose the best tariff if only single units rates are quoted, it needs little research to come to this conclusion – comparing single numbers is obviously easier than comparing a combination. It is, however, somewhat insulting to the intelligence of most of us to assume we are incapable of doing slightly more advanced arithmetic than this. The effort is within most of our capabilities.

The oversimplistic approach that tariffs should be like petrol prices is flawed in this respect. You do not get petrol (or diesel) brought to your house, you need to drive to the fuel station. While you may find the cheapest litre price you may have to drive or detour further than your nearest station to get it – and this can easily add a pound to your cost in fuel used, so your “cheapest” fuel now may cost you 2 or 3p per litre more to cover your journey. Not the best way to save money perhaps?

It is important not to get into a hole by pursuing an objective that is not clearcut, but to keep an open mind. Only 67% of your gas bill and 58% of your electricity bill covers the raw fuel; the rest includes environmental costs, distribution and transmission charges and meters – it seems only fair that all users contribute in part to some of these costs.

More important is to get energy bills down – increase genuine competition – rather than tinker with the existing system. Why have UK’s energy prices increased far more than nearly every other EU country over the last 2 years? Let’s have a campaign to deal with these issues so ALL energy users benefit, not just shifting the costs from one group to another.

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Guest

SSE spells out the issues which have been raised in previous conversations. They make valid points – the issue is not black and white. So having tariffs that offer single units pricing only, and tariffs that offer the alternative of a standing charge plus unit prices, allows the customer to make the choice of the best deal to suit them. Banning one or the other would simply restrict choice and disadvantage one group of curomers or another.

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Guest

If there was choice the market would get distorted as high users would be better off on standing charge tariffs and low users on unit only tariffs.
Suppliers with unit only tariffs would have to raise their costs to compensate for the loss of the larger users who are cheaper to supply.
How about some estimates on how much a unit only tariff would affect an average and higher user ?

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Guest

For those interested the final proposals from Ofgem are in the document at the following link:

https://www.ofgem.gov.uk/sites/default/files/docs/decisions/the_retail_market_review_-_implementation_of_simpler_tariff_choices_and_clearer_information.pdf

On the controversial question of tariffs and standing charges:
“Tariff structure and surcharges
2.13. Stakeholders were supportive of our effort to standardise and simplify tariff structures. Some stakeholders do not feel the policy goes far enough and have proposed we consider removing standing charges and adopt a single unit rate structure. While our policy requires suppliers to adopt a standing charge and unit rate structure, we do not specify the level of standing charge and consequently any standing charge can be zero. Ofgem does not regulate prices in the retail energy market, and therefore the level of any prices results entirely from the commercial decisions of energy suppliers. Suppliers have fixed costs which they may look to recover through a standing charge. However, given the level of demand for low or zero standing charge products, in a competitive market we might expect such tariffs to be offered.
2.14. One respondent expressed concern that if wide proliferation of standing charges occurs it may undermine tariff simplicity. Whilst a wide proliferation of standing charges may work against what we are trying to achieve in terms of simplicity and comparability, we consider the potential for this to happen is significantly limited by our proposals to introduce a tariff cap. Moreover, there are benefits if consumers have a degree of choice over the standing charges to which they are exposed. This, in part, is why we are not proposing a range of rules around the standing charge element of our proposed revisions to the tariff structure. As with other areas of the package, we will monitor market developments and do not rule out taking steps to introduce further remedies in the event that there is evidence that more needs to be done to protect consumers and improve competition.”

And on communication
“Cheapest Tariff Messaging (‘CTM’) provides consumers with personalised information on how much they could save by switching tariffs with their current supplier. This is designed to improve consumers‟ awareness of the savings available from switching and prompt them to consider their options.”
which, of course, may also give the customers sufficient information to help them shop around – to see if other suppliers can offer a cheaper annual bill.