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Do you think you could beat our tariff test?

Energy tariffs in petrol pump style

We found only one in 10 people could identify the cheapest deal when presented with a range of standard energy tariffs. When shown the tariffs in a simpler form the number shot up to nine out of 10.

Imagine pulling up to a petrol station and instead of seeing that the cost of your petrol is going to be around 142p per litre, you’re presented with a baffling array of figures that are all displayed and calculated differently.

You could have a fixed charge and then add the price per litre on top, or you could have different levels of price per litre determined by how much you fill up. Once you’ve decided this, you then need to work out if you’d be better off on a ‘standard’ deal, or if fixed or variable deals are the way to go. Think it’s a good idea? I thought not. Just imagine the queues!

Gas and electricity pricing

So why do we have this complicated, confusing system for our gas and electricity? The latest investigation from Which? shows that only 8% of people could work out the cheapest tariff when presented with six energy deals. The energy suppliers have each adapted their tariff and pricing structures for their own deals so what we’ve been left with is a market that’s now so complicated it’s nearly impossible to find the cheapest deal.

So, it’s hardly surprising that most people don’t even bother trying to find out the best deal for them, even though some could save hundreds of pounds each year.

We think that consumers have the right to simple, easy-to-compare gas and electricity prices. Why can’t it be simpler? If it was more like petrol pricing, and we had one unit rate we could easily compare all gas and electricity deals at a glance.

Price rises bump up bills

With headlines warning us of higher energy bills, and British Gas and Npower announcing price rises this week, it’s even more urgent that we can work out what the cheapest energy deal is.

Ofgem, the energy regulator, has spent two years reviewing tariffs to try to help you switch to get a better deal. It has promised to be bold and force energy suppliers to cut down on the unnecessary complexity. The question is, will it make the ‘bold’, but necessary, reforms or will it simply cave in under the pressure from industry?

If we don’t get the results we’re looking for, we’ll be demanding that the government steps in to simplify the market once and for all.

Comments
Alan Greenslade says:
18 October 2012

Profit should not be made out of basic resources.
Energy should never have been privatised. There should be a massive move to renewables to reduce dependency on foreign sources and carbon emissions and the processing and supply of energy from whatever source should be by a non-for-profit public company run independently of government.

john p says:
19 October 2012

Just received letter from npower re price increases starting 26 Nov 2012 –
Elect. 1st units up 12%
Elect Rest of units up 6%
Off peak daily charge down 5.7%
Off peak unit rate up 26%
Gas 1st units down 9%
Rest of units up 25.6%
This seems a strange way to increase prices, one thinks ” what are they up to”.
To comfuse even more there are 20 electricity and 8 gas tariffs in my area.

I support simplifying tariffs even though I can do the calculations.
My concern is for those who live in the rural areas and can only have electricity or stand alone systems which are the most expensive to both install and run.
An all electric household needs far more variables than those being proposed by OFGEM as the consumption of electricity is more than 10 times that of the consumption of electricity in an urban property with gas.
I presently have a 4 part tariff from EDF which works very well on the times agreed and is understandable.
I wish to keep it.
Please remember the all electric household in the rural areas who has little choice.

Alan E says:
19 October 2012

British Gas have sent me their notification of the proposed price increases with encouragement to go for their ‘Fix and Fall’ deal. I am currently on the ‘Online Tariff’, the cheapest for me. So why would I pay even more for the ‘deal’ where I would pay a higher tariff on their ‘standard rate’ (whatever that is!)? Just the faint hope of prices dropping!! Hmmm could it be that BG will make more profit if I switch.

I believe that the best way to reduce prices is through competition between energy companies. The danger in regulating prices and pricing structures is that it may stifle competition and consumer choice, for example between fixed & variable tariffs.

brian craggs says:
19 October 2012

I agree that tariffs should be made easier to understand.I was paying £1500 a year for duel fuel with EON on Age Concern Plan,which I had been on for many years (transferred from the previous supplier who operated these plans),when I finaly queried it with EON they said I was on the best plan.I changed to First Utility 2 years ago,and 2 years on i am only paying £1300 this includes 2 yearly increases.So clearer plans would help,but the only way to get fairer chargers is to compel Providers to bring prices down when costs come down,and this can only be done by the government,it is no good relying on OFGEM THERE TOOTHLESS! and complacent,and the Fuel Suppliers are run by greedy people who are only interested in increasing their salaries & bonuses.

Tony Cullen says:
20 October 2012

One thing is not mentioned when discussing switching energy suppliers that is their power to change the value of the direct debit midway through a fixed term contract. Diligently working out what your projected cost of energy are and then choosing a cheaper supplier can be negated if the supplier then ups the direct debit value you have decided on. My supplier OvO did this and currently I am £250+ in credit. Even after requesting a refund they have not done this.
Finding the cheapest supplier is only part of the problem. What is also required are some rules about the levels of credit/debit values for those who pay by direct debit.

My contract is a monthly variable direct debit, which can be varied if my usage is not as predicted, or if prices change. In practise npower have used this sensibly, and I am not building a significant credit or shortfall. Although my contract has an exit penalty this does not apply if prices increase during the term – I am then free to change to another contract or supplier. Your direct debit has to cover the cost of what you use – putting a limit on it would mean topping up at some point if you use more than estimated.

Matt R says:
20 October 2012

Can anyone post the answers to the “Can you pick the cheapest energy tariff?” test.
The answers I have are
Southern Electric 317
nPower 287
Scottish Power 268
British Gas 311
EDF 299
E-on 345

So when I did it the cheapest is Scottish Power, but in the answers it says nPower is cheapest, what does everyone else think?

Matt R says:
20 October 2012

I can now see my mistake, Scottish Power is the only one to give the first units at the higher price quarterly, where all the others are annual. Hence nPower is cheaper. Just goes to show how confusing it is.

I have thrown away the envelope with my answers, having given up waiting for the answers. I’ve just re-calculated the nPower cost as £286.94, in agreement with your figure, and remember it was the cheapest.

Wouldn’t it be good if electricity was made using British Coal or British Gas or British Nuclear, and sold at just above cost price – same price for everyone, and the profit used to build new power stations, and financing world class research.
Oh, I forgot, that’s what we had until we sold everything we had to foreigners. Its still nationalised, but by the French! That’s what E de F means!

We don’t have a lot of coal that is readily accessible and it could be very important for future generations to be able to make plastics, chemicals, pharmaceuticals and many of the everyday products we use. Should we just think of those who are living now or plan for the future?

Maybe thorium reactors but I’m not sure that old-fashioned nuclear reactors would be a good idea.

Tricia S says:
20 October 2012

I’m with ebico – the simplest tariff possible, as you simply pay one rate per unit used with no standing charge. This is ideal for anyone like myself who keeps their energy usage low. With other suppliers, the standing charge was a ridiculous proportion of my bills.
But I think the ofgem proposals are going to force all suppliers to have a standing charge – I hope not!

Tricia S – I hadn’t come across this. They seem to charge 14.501p for electricity, 4.578p for gas. Comparing this with an npower tariff (Elec £127.39 s/c + 10.605/unit, gas £78.84 + 3.525) you save money if your annual usage is around 3300 kWh electricity (coincidentally Ofgem “typical” usage) and 7500 kWh gas. Above that you will pay 30 – 37% a unit more. It shows how important it is to monitor your energy usage year on year to predict your likely future usage so you can select the best tariff. Forcing a company to offer or give you the best tariff is only part of the answer; you may be with the wrong company in the first place. This will not change whatever sticks are put in place. The answer still is to make the effort and shop around!

Sel R says:
21 October 2012

Malcolm,
“It shows how important it is to monitor your energy usage year on year to predict your likely future usage so you can select the best tariff.”
monitoring consumption is no guarantee of future usage, weather and personal circumstances can change significantly, see my separate posting comments.
Energy prices should be like petrol prices, all suppliers quoting on exactly the same basis, so one can judge the cheapest option.
If, as has been suggested, this would lead to all suppliers quoting the same price, this would surely indicate a cartel situation worthy of investigation by the Monopolies Commission.

JohnO says:
21 October 2012

I am a firm believer in the policy of ‘cheapest units first’. This policy rewards the careful, and discourages the profligate. Good for the careful, and also all users as the supply promises to lag behind the required in the future.

Sel R says:
21 October 2012

My major complaint and criticism, not addressed even by Which, is that to compare the prices and deals of various suppliers on must have an idea of previous consumption.
Whilst this is not difficult to establish, one’s future consumption may vary significantly from the figures you use. Just had a warm summer and mild winter? This may categorise you as a low user, and guide you towards a particular suppler and tarrif. If next summer is poor and the winter harsh, your consumption may increase dramatically meaning you’ve picked the wrong deal, as illustrated in the Which article.
During the last 12 months, my daughter and her family lived with me for 6 months, and before that my wife was at homewith a significant illness
As a widowed, single pensioner, how can I compare prices based on the previous annual consumption?
Does any other supplier of goods or services base their price on what you could have bought previously, irrespective of what you will buy in future?
All suppliers should be compelled to quote on an identical basis, not necesaarily identical prices. Can petrol companies quote the price of petrol in, say, pence per litre, with a high price for the first 100 miles, and a lower price for subsequent miles? Of course not.

Set R – I am simply suggesting that under the present circumstances you need to make the best prediction to choose the best tariff. However, in general, if you analyse tariifs there is a fairly clear usage band where you are better off on one group of tariifs (e.g. single unit price as Ebico or high/low tier tariffs) and another (standing charge + single unit charge) so unless you are in the grey area between these groups I don’t think you are going wrong – just choose the best supplier. However, elsewhere I have suggested that once you have chosen a supplier you should not have to gamble on which is going to be your best tariff (other than a fixed price vs variable) – why should not your chosen supplier simply charge you at the end of the yearly cycle at the tariff that would be cheapest for you? Even if you are on economy 7, why gamble at the outset that you will use enough night rate units to compensate for the higher day rate (about 40-50% night usage is the break even point I believe)? I suspect you need to be on storage heating to take real advantage of this, and that is less and less popular

John O – your argument presumes that higher uses are profligate – as has been stated elswhere these may be larger families – far from rich – people in houses that cannot be well insulated, those whose only source of energy is electricity, etc. Why penalise them?

tony p says:
22 October 2012

Why do “Which” ignore not-for-profit Ebico? Almost a dereliction of duty to give an impartial view of energy suppliers.
One tariff only – irrespective of consumption – no special offers- NO variation in cost based on payment method – from pre-payment to direct debit. The ideal solution to complexity – simplicity!
Current tariff 14.501p per kWh for electricity (Eastern region) and 4.573p per kWh for gas.

A very satisfied customer.

tony p – I commented on Ebico above – you save money if your annual usage is around 3300 kWh electricity (coincidentally Ofgem “typical” usage) and 7500 kWh gas. Above that you will pay 30 – 37% a unit more (compared to an npower standing charge tariff). It seems good for an Ofgem “typical” household but not for larger households. Important to collect past readings to predict your annual usage.

Benson says:
22 October 2012

Is there a problem with EDFs system? I’ve been ringing them several times this past week and I keep getting pretty music and the same options repeated to me, but no answer from an operator. When I called on a BT land line (which was free) I got an answer and asked the operator if I could have a refund of my account (it was over £200 in credit.) He said to supply a meter reading and they could sort it out from there. You can supply a meter reading using your ‘telephones keypad,’ so I did, but ever since I can’t get through to another (human) operator. EDF must be having problems…

Which? – a good deal of controversy surrounds the issue of energy supply companies presumably recovering fixed costs by either two tier tariffs or standing charges. How do they argue in favour? What is Ofgems view? It might help the conversation if we had responses to comments from the other side of the fence.