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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
Derek W says:
22 October 2012

Isn’t it time re-nationalised our fuel industries (Electric and Gas) so that any profits made are put back into public coffers and not private pockets? Ever since Mrs Thatchers (traiterous b***h) privatised all these public assets, closed our mines and put the miners out of work, closed the power stations that used coal and put more people out of work, this country (UK) has gone to ruin.

She had an agenda to destroy the unions and she has very nearly destroyed this country as her successors are still S******G the population and not making it better. The banks are still carrying on this legacy.

Re-nationalise our assets and look to re-opening the mines and building more economical power stations. Thereby addressing our power problems for now and the future before it’s too late.
The people that would then be employed would help to reduce our burden of the unemployed.
Remember people in work get paid they pay taxes and buy things spreading their wealth around, very basic economics for the people with their heads up their a***s like David Cameron and his tory cronies.

As for ofgen another level of officialdom that doesn’t work, has NO TEETH and is really too expensive to keep, Think of the money we’d save getting rid of it and putting a real organisation in place that would hit these privatised bandits where it hurts them most, IN THE POCKET, or bottom line of the accounts ledger. I mean REAL punishment not token slaps they can afford easily.

Stop messing about and hit these pigs with both their feet in the trough now not when they’ve managed to squirrel it away in their home countries before our taxman can get any for our public coffers.

Derek W says:
22 October 2012

Damn I forgot, I just got a letter from Scottish Power this morning and they warned me that they are increasing my gas and electric by 9.5% from the 1st December 2012. How bloody nice of the thieving pigs. I just wish my benefits would go up by 9.5% to meet this extortion, instead of me facing the threat of some French Company looking to ROB ME of the hard earned level I get after having gone to several tribunals and appeals.
I did not want to be disabled, unable to walk far and being totally reliant on crutches for short distances (20 to 30 yards at best) and electric scooter (which I bought myself) for the rest but being in pain all the time (for which I have to take morphine) is not funny and the future now looks bleak as I can’t afford to go shopping as much as the bills rise.

About the last thing that would help would be nationalisation. The record of government procurement, government organisations and the involvment of civil servants with no expertise in running business is abysmal. There are business that work well with different formats from the norm – John Lewis as a partnership for example, cooperatives (like the Co-op or the Wine Society where members own shares, seem to work well and members benefit from profits in one way or another. In energy Ebico advertises itself as a not-for profit supplier; it is certainly cheaper for lower-energy users and appears to use surplus (profit) to help needy energy users. It is not financially attractive for above average consumers but the business model is interesting. Perhaps a not-for-profit company funded by its customers and benefiting all its customers with any surplus could be an attractive option.

Sel R says:
22 October 2012

Where do OfGEM get the understanding that the “average” annual electricity usage is 3,300 kWh, i.e., 253.85kW per each 4 week period?
I read my meters religiously every 4 weeks, and since 4th May 2012, when I once more became a single resident in my house, my lowest consumption was 378kWh.
The average 4 weekly period since 4th May is 432kWh, which equates to an annual consumption of 5,622 kWh.
Admitedly I live in a 4 bedroom detatched house, but my house is fully double glazed, has cavity wall insulation and complete coverage of loft insulation to recommneded depth.
I have gas central heating, which is set to 15 degrees, and operates for 5 hours per day maximum.
I have an electric oven, which I use three times per week at the most, and use my microwave oven more often.
Where am I (or OfGEM) going wrong?

According to e.on, I used 1,872 kWh electricity and 11,164 kWh gas for my poorly insulated two bedroom bungalow. I try to avoid waste but would not claim to be very careful.

Kev W says:
26 October 2012

I’d suggest a clue is that most people, myself included, have their heating set closer to 20 degrees than 15. You may as well not have central heating at all with the thermostat set so low. That’s your personal choice of course. Personally I’d rather dress for the outdoors when I’m outdoors, not indoors where I prefer to wear t shirts.

Sel R says:
26 October 2012

Kev W:- perhaps its a bit misleading to say my stat is set to 15 degrees, as I think that most older devices do not really reflect the actual temeperature at all.
I don’t have a thermometer close to my stat, which is in my hall so don’t know the trrue temperature there. All I know is that, with the stat set to “15”, my house is comfortably warm throughout.
I should also say that I don’t have thermostatic valves fitted to my rads, so some, (most) of my rooms are fully heated, even when they are unoccupied. Fitting TRVs would be quite expensive, and the cost unlikely to be offset by lower fuel bills.

SetR – I am mystified as well as to what type of household it typifies. My consumption is significantly higher.

Sel R says:
22 October 2012

Malcolm R,
I’ve been monitoring this topic and I think you and I are singing off the same hymn sheet! We need more members of our choir!

In an idle moment I attempted an electricity energy audit on my house – all items and their estimated annual usage – to see what my bill was paying for. Not surprisingly an all-electric kitchen (cooker, fridge freexer, dishwasher, washing m/c, drier) accounted for around 33%; An oxygen concentrator (medical) 26%, TV (plasma, on a lot) 16% and, a bit surprisingly, a computer that is on all day 7%. Lights were around 6% – low energy – but would have been a much more substantial part had they been incandescent. At least I know what is worth tackling if I want to reduce my bill significantly.

If everyone did the same and made use of the information we might not need to worry about the risk of power shortage, at least for a few years.

BrianS says:
24 October 2012

Fascinating though they are, the contributions now seem to have diverged away from the fundamental issue of what should be done about confusing gas & electricity tariffs (INTENTIONALLY confusing, as I commented in my contribution on 18 October) and now focus more on personal issues and approaches.

That’s fine – but can I return to what organisations like Which can do to make life simpler, not just for its readers/subscribers but for the community as a whole.

The example of petrol pricing is useful, but a bit misleading because – as a petrol-consuming driver – there are two issues which influence what I will pay for my petrol, neither of which apply to my gas and electricity supplies.

The first is location. How far am I prepared to drive to get to the garage which offers the lowest price per litre? The primary consideration here is “will I spend more on paying for the petrol I consume getting to the garage than I save on the petrol I buy when I get there”. We have a supermarket garage which regularly sells petrol at 2-3p/litre cheaper than anywhere else. But it’s a 14-mile round trip to get there. So even with a reasonably economical car (around 10miles/litre) I have to save the cost of a 1½ litre of petrol – currently around £2 – on my purchase to justify the journey (even if my tank held 100 litres – which it doesn’t). The secondary consideration is convenience – “do I have the time and inclination to make the journey?”. Fortunately, some of the journeys that we regularly make take us by, or near, that garage so we try to organise things to fill up there every time the opportunity arises. Without that we’d never use that garage.

The second is quality. How much of a premium am I prepared to pay to ensure that my precious car gets the optimum fuel for performance and engine care? In our case, not much. So we tend to take any opportunity to top up when we see a low-price offer for petrol regardless of brand. Perhaps if I had something more “sophisticated”, like a Farrari or a Bentley, I’d be more concerned. But then if I had a car like that I probably wouldn’t be worried whatever the cost of petrol was.

With gas and electricity supplies it’s different. There are no quality or location issues – the same gas/electricity comes in through the same pipe/cable whichever supplier I choose. So why should I be paying different prices for it?

Well I suppose there might be a bit of peripheral scope on “quality” – not on the gas/electricity itself, of course, but on the quality of customer service provided by the supplier. Though in our case that is exceedingly marginal – not much evidence at the moment that suppliers are falling over themselves to out-do each other on customer service. About the only time we interact with our supplier is when we change supplier to get a better price.

I might be persuaded to pay a premium price if I were really convinced that a supplier had an EFFECTIVE ecological policy (ie: something more than just hoodwinking people into thinking that they were supporting the environment rather than supplementing corporate profits). So far that has not happened.

Of course, the reason that supermarket garages can offer such low fuel prices is because they use it as a “loss-leader” – come to us to fill up on cheap fuel and then pop into our store to do your shopping. Perhaps there’s a pricing lesson there. Buy your gas/electricity from SainsAsdTes and get a discount on your shopping bill – or vice-versa. That does happen from time-to-time, of course.

So where does the idea of adopting unified petrol-pump-like pricing structures for gas & electricity get us?

Well, gloomily, not very far really.

If gas and electricity tariffs were as simple as petrol pump prices we’d all be buying from the one cheapest supplier (unless we were locked into contracts with punitive escape clauses) – so all the other suppliers would go out of business – which would leave the one as a monopoly which could then charge what it liked as there was no “competition”.

Sounds like an argument for re-nationalising gas & electricity (and water) supplies? That’s not what I was trying to do, but I seem to have made a pretty good job of it anyway. So a little question: “If the open competitive commercial market is so good for customers, why all the angst and why does it need so much regulation?”. Or alternatively, “Is the price of commercial profiteering better or worse than the price of nationalised inefficiency?”.

So, being also guilty of divergence, let me get back to my original question – “What can Which do to help its subscribers and the community”.

1: Keep pressing for a standard format for tariffs. For example: ALL domestic tariffs should consist ONLY of:
* a figure for the daily standing charge – even if zero
* the threshold figure and unit rate for the first tranche of consumption – even if zero
* the unit rate for all consumption above the first tranche
* any optional discounts.
* inclusive VAT at the current rate.

2: It is clear from the discussions that many people not only find calculating consumption costs from complex tariffs difficult (I don’t – but then I’ve got a research degree in information/data management and analysis) but, because of the complexity, find them very tedious and time-consuming to work out (I DO – because, given my background, I can see that it is unnecessary, except to enable suppliers to confuse customers deliberately).
So suppliers should be required to produce a composite table (ie: all their tariffs together in one table, ideally supported by a simple chart) which clearly shows what the total cost is at different STANDARDISDED consumption levels (eg: incrementing in units of 250KwHr/Yr from 500 to 5000) so that customers can not only compare prices at one particular level but can do simple “what ifs” should their consumption vary.
I did that for the three example gas tariffs and it clearly shows that although npower is the cheapest option at 2100KwHr/Yr it loses that advantage to British Gas if consumption goes above 3000KwHr/Yr and even to Scottish Power above 4250KwHr/Yr

3: Keep pressing for a restriction on the number of tariffs that a supplier can offer: for example, limited to just:
* A variable rate tariff, where the prices can go up or down in line with wholesale prices;
* A fixed rate tariff, where prices are fixed for a defined period of time;
* An “ecological” tariff which includes a premium for sourcing fuel from renewable supplies.

4: Keep pressing the regulator to outlaw the practice whereby tariffs are allowed to escalate and proliferate so that the only way that users can keep on the lowest tariff is by constantly changing tariff – ie: even if they are not changing supplier. This, effectively, is the logical outcome of implementing 3 above.

5: Keep pressing for the MAXIMUM contract period (ie: the period within which suppliers can charge a penalty for switching to another supplier) to be 12 months. Then, once the customer has gone past their 12-month (or whatever) contract period they can switch at any time with just 1 month’s notice. That both meets the legitimate (in my view) requirement of suppliers that they are not susceptible to the overheads of capricious customers who want to be changing supplier every time a new “deal” comes out, but still providing customers with the opportunity to “keep up with the market-place”.

Logburner says:
27 October 2012

Assuming you eat, why not fill up when you go shopping?

I agree with much of what Brian S says. However, some of the “divergences” explore how we use energy and how it might be reduced to save money (and the lights-out doomsday) so are relevant.

It seems to me it’s a bit like the insurance industry – you get different premiums from different companies even though your risk is the same.

Energy companies should be able to compete on price on the basis, for example, of more efficient administration, cheaper premises, economy of scale (so lower overheads); better at buying futures (so lower energy cost); better at customer service (e.g. dealing with DDR surplus); reduced trading cost (e.g. on-line meter readings and payments). so there should be differences between them – and we should be able to take advantage of them. However somehow the legislation should make sure that real competition is not hidden in a cartel. Looking at Switch websites there are significant differences in what you will pay, so there is competition. The main issue seems to be whether energy wholesale cost changes are sensibly passed on.

The question of environmentally friendly energy – usually at higher cost – is difficult. It seems that the market becomes distorted by politicians – expensive inefficient wind farms for example – by making promises to EU that are not realistic financially. How do we get better schemes (e.g. tidal) moving?

I still wonder why you have to choose a tariff at the outset. Apart from choosing a fixed rate (if you think you know better than the energy company), once you have decided whether it is on-line or postal, why not have the supplier charge at the end of the year (monthly payments still, end of year adjustment) , when your consumption is clear, on their lowest tariff for that usage? This could include lower unit costs at night when energy is cheapest. I’m sure I’ve missed a simple reason why not.

Len M says:
16 November 2012

Malcolm – You say “I still wonder why you have to choose a tariff at the outset.” Well, (as you also say), you choose fixed rate or variable, and paper or on-line billing. You would also have to select payment method, and whether you are metered for Economy 7 or some other system. Doesn’t leave much to be sorted out at the end of the year!

Patsun says:
24 October 2012

Let’s follow the lead of Belgium. If we establish where the best deal is and sign up to this en masse, surely that’s the most sensible way forward?
It is time to unite and show these greedy companies that they can’t continue trying to blind us with science (i.e. multiple tariffs! )

Kev White says:
26 October 2012

Firstly, I think it’s concerning that nearly 10% of the population can’t identify the lowest of 3 numbers!

Secondly, my Scottish Power tariff, “Online Energy saver 7” is coming to an end on Dec 1st, and their prices are increasing from Dec 3rd. Bad news? You’d think so. However using their own website tariff calculator their “Online Fixed Price Energy April 2014” will, using historical consumption, apparently be £59.35 cheaper! How is this possible, or was I tricked into a poor deal last time? Either way, what we need is simple tariffs that don’t need a BSc to understand. In the meantime I’m going to spend time researching the cheapest deal.

“Tricked into poor deal” – online comparison sites do find your best deal with little effort – best if you look at last year’s total electricity and gas use and decide whether you want a fixed price or not. So if you make this effort to get alternative quotes you should not “be tricked”. It does not pay to be complacent – like lots of other things, car and house insurance, savings rates, breakdown cover – do not assume your existing arrangement will be best on renewal; no credit is given for loyalty, you need to shop around. npower wrote to me advising me my present costs will rise 16% – but failed to mention another tariff they offer which would only increase my costs by 6%. I have asked them why they haven’t mentioned it, just to be provocative, but I would hazard a guess they rely on me meekly coughing up. It’s a hard world!

Set R – it would be worth putting a thermometer in your living room so you could see what setting your hall thermostat should be to keep you comfortable.
Regarding thermostatic radiator valves – I understand a typical charge for fitting is an initial £150 plus £15-£20 a valve. These allow you to set different temperatures in different rooms (e.g. bedrooms lower than living rooms) and have a low temperature in rooms not normally occupied. So for 10 radiators the total cost might be £300 – £350. You’d need to save around 8-9000kWh (units) of gas to pay for them – say 1800 a year for 5 years. I’d be surprised if that didn’t give you a decent return.

Turning off radiators when they are not needed is an even cheaper solution.

Logburner says:
27 October 2012

Assuming that the government’s intention is to provide consumers with a better deal, the simple solution would be for the government to set up a series of “standard energy tariffs” which reflect typical consumer use (low, medium, high, very high for example) over a year using a “standard across the board” measurement of the energy e.g. joules or KWhrs.
The suppliers should then be forced to supply users with a statement of the energy they used over the last period (say a year) on request by say email or telephone.
The suppliers would then have to provide a pricing to meet these “standard energy tariffs” which would then be a doddle to compare, and why not put it on the government web site if the true intention is to provide the cheapest supply, rather than to line the pockets of the industrialists.
If the energy suppliers then want to offer additional deals then let them, more fool anyone who chooses to use a supplier who likes to dress up like a wolf in sheep’s clothing.
Alternatively if the government are unwilling to set up such a scheme Which? could do it and invite the suppliers to quote to the standard, consumers then have a choice to follow or not……
Revenue to support the admin cost of such a scheme could be achieved by charging for hyperlink click through to the energy company sites.

John Hewitt says:
27 October 2012

The hype against tariff complexity is not justified. It is a simple matter to take the difference between the charge for the first x units and multiply by x and then take you annual consumption and multiply by the basic charge. Take away any discounts and that’s what you pay. Simple. If there is a daily charge instead then use this multiplied by 365 and use that figure instead. Dimples! It does Scottish Power as dishonest when it says ‘no standing charge’. It is there in the first 225 units. If you do not know how many units you use each year you probably do not care. Keep your bills and add the units together

logburner says:
27 October 2012

The world is going powerless, energy suppliers could easily provide the info online, in a format that is easy to understand if they wanted to. I have better things to do with my life rather than file bits of paper. Car insurance comparison sites are easy to use, why the compilation with energy?

logburner – the energy comparison sites do all the work for you – WichSwitch, USwitch etc. Just look up your annual kWh used or your spend and it is easy to get prices and details from the best suppliers for your situation. Although they also help you switch supplier if you want, you can just use the price comparison bits. Less information needed than insurance sites!

D Hindley says:
28 October 2012

Two years ago looking at one of your articles on energy prices I came across OVO who were just starting operations. With an such an unknown name i was deeply suspicious.
I contacted them and spoke to real people who understood and spoke correct English. (With their name i had thought they might be Scandanavian). The team there were always helpful and after sorting earlier problems due my having multiple meters i have excellent clear understandable billing. Their billing has evolved over the past 24 mths to become more informative and calls always answered by educated and informed operatives
On checking at contract renewal time from the miriad of alternatives OVO came out i think second from cheapest losing by a very small amount. Due to the billing information and intellegent service
I renewed with OVO as i felt confident with the their service and advice. If they remain competetive
there is no question i will remain with OVO. Offers are clear and Bills excellent and real people are quickly on the phone.

john says:
28 October 2012

Why is choosing your supplier such a difficult task. They all say they offer the lowest price and if you ask the straight question of how much they charge per kW/h none of them can give a straight answer. Why can’t OFFWATT step in and insist on easy to understand rates?
Must say I like the idea of grouped local residents going out to tender to energy companies.