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Why your ‘bargain’ energy deal could change tomorrow

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When I switch to a new energy tariff and get my first bill, shouldn’t I pay the prices I’ve just signed up to? Sadly energy companies don’t think so – there’s no guarantee your prices won’t change just after switching.

It sounds crazy, but unless you’re on a fixed price tariff, energy suppliers have no obligation to bill your gas and electricity at the price originally quoted.

You might sign up to a tariff expecting to pay a certain amount, but by the time the switch has finished, you could find yourself paying more.

How does that work?

It can take up to six weeks for energy companies to switch your gas and electricity. And though this might sound excessive, it takes time for your old supplier to give final readings to your new supplier, and for your new account to be set up.

In the meantime changes in wholesale fuel costs, and any number of other issues, could have a dramatic effect on energy prices. So unless you’ve signed up to a fixed price tariff, there’s nothing to stop your new supplier raising prices in the time between signing up and once the switch has finally taken place.

Exit fees are an extra blow. You’d hope to be given a chance to reject your new supplier’s offer if its energy prices rise during the switch. But no – you may have entered your contract period during this time, meaning you’ll have to pay a hefty exit fee to get out of it.

What’s the alternative?

We’d like the system to work more like phone and broadband. When you sign up to a new phone or internet package, you’re usually told how long your introductory offer will last, and how much the service will cost after that.

This means you can sign on the dotted line safe in the knowledge that your first bill won’t come as a surprise.

What can we do about it?

We’ve been asking Ofgem to change this for years, and there hasn’t been much sign of movement. When we last brought this up on Which? Conversation the consensus was that Ofgem won’t, or can’t, do much about it.

B. Martin said ‘Ofgem do not have the power to introduce radical changes’, while Dave suggested that the only way to make real change was to renationalise the energy market.

But when MPs get back from their Easter holidays they’ll be debating the Energy Bill, which gives us a real chance to drive this issue forward. You can help out by asking your MP to support us in making the Energy Bill more consumer-friendly, including a promise that tariff prices will be guaranteed for 12 weeks after you sign up.

We’d also love to hear your thoughts on the issue, so we can give your examples to the energy companies, Ofgem and the government. Have you been a victim of surprise energy price increases? Does this put you off switching energy providers?

Thing1 says:
13 April 2011

If your top priority for an energy tariff is price certainty why not simply sign up to a fixed price tariff? It is similar to the mortgage market. If you want to know the price you’re going to pay for a set period of time you sign up to a fixed rate mortgage. If you’re willing to take the risk that payments will go up or down you sign up for a variable rate mortgage.

The pricing in the phone and broadband market is also extremely confusing to customers given the many, many different deals and use of compex discount structures. I’m not sure they’re really a model to follow.

Emily says:
15 April 2011

This happened to me just the other week. Only switched to the new low tarrif (chosen as Which? Switch said it was the best deal for us!) a month or so, and now they’re putting prices up. Yes, it’s probably still at the lower end of the pricing scale, but when they offer you a deal and are happy to lock you in for at least one year, surely the should be locked into that same deal for the same period of time?

You make a good point. You are signing up to the contract on the basis of the price you get, or at least on the basis that it bears some relation to the market. If the supplier changes the price during the period of the contract such that this basis is no longer the case, while you cannot claim that the contract itself has been broken, would you have a case for the terms that lock you in being unfair?

Dave says:
17 April 2011

We changed energy providers using Switch with Which recently.The old providers (British Gas and N Power) accepted our telephoned final meter readings with no further checks.The new provider e.on, sent a third party to check only the gas meter. Why therefore does it take several weeks to get switched over? Could it be a ploy designed to put customers off changing supplier?
We were hit with a price increase from e.on within a couple of weeks of joining them. I regard this as a form of punishment for changing.
Among the many smoke screens which the suppliers use to their advantage is the two tier system of killowatt-hour charging ( a higher rate for the first so many killowatt-hours in the year and a lower rate for the rest in the year). This system should be abolished and a single tier method used. This would make bills easier to check particularly when there has been a price increase. It would make more sense with a simple relationship between the energy consumed and price paid giving a better incentive to all to use less.
The energy market is a very good place to be in for suppliers but not for consumers. It is indeed time to redress the balance.

Disgruntled says:
17 April 2011

This is sharp practice at the very least. I am sure that the T&Cs allow the companies to change prices whenever they like (and many tell customers after price rises take effect too – grrr) but it doesn’t win customer loyalty.

The best solution at the moment seems to be http://www.moneysavingexpert.com (a free, independent financial advice website by Martin Lewis) which tracks the energy market. Basically price rises generally follow in waves as, if one company puts prices up, the other companies feel they can get away with a rise too. moneysavingexpert.com therefore reports news of rises and recommends switching or not depending on how many more companies are likely to announce price rises shortly.

(And no, I’m not on commission. I’ve just found it useful and wanted to share the tip.)

In Martyn Hocking’s editorial comment (Which? May 2011) he complained about an ‘inexplicable’ increase in his payments to his energy supplier (payment increase of 25% when actual prices increases were around 7%). Well, for your information, here is another interesting one:

I tend to check/change my supplier/tariff in the run up to winter and pay by monthly direct debit. That way I’m the one that owes the energy company over winter but the balance is brought back to zero over the summer months.

** We’ll I think my energy company (EON) have decided to take steps against consumers that do this. **

EON increased my direct debit from £87/month to £125/month around Xmas time. (I didn’t really have chance to fully investigate at the time) Last week they suddenly dropped the monthly payments back to £85/month! A check on my on-line account shows that I’m now in credit on my energy account. This means I’m now going to build up a larger credit over the summer months!

Before anyone points it out: Yes I know I’m the one ‘taking advantage’ of a system. However, I thought you may be interested in this energy company tactic . PS. for EON – I’ll be checking tariffs in the very near future and definitely before winter!

Switching is and can only be a short term gain. I have switched many times and found in the vast majority of cases I’m not waiting long before the gain I made has disolved. In the remainder of cases, usually a one year fix, I wait longer but disolve it will.
There is a whole industry that has sprung up to facilitate switching energy suppliers, getting cheaper insurance or a better mortgage. Probably why we hear so much about “switching” in general. This isn’t neccessarily a bad thing but we have to look at it in perspective.

Switching energy supplier is I would suggest the least beneficial of all switching initiatives. Your gain will be short lived. Best damage limitation with regard to energy cost is to use less of the stuff.
You will gain more and retain that gain by buying home insulation and as appliances need replacing buying more efficient versions.
I’d like to see as big a push on energy efficiency as we see “comparing the market”. Then we’ll all gain and keep those gains.