Petrol pump energy pricing is key to switching

If we have simple energy prices there are no standing charges, so that everyone pays the same price for the amount they use, just as we do with fuel.

I’m sure that’s what Kate meant when she said in the Intro “like a petrol pump display, which includes both the standing charge and unit rate”. In other words any administrative costs like metering and billing are absorbed within the display price. I might be persuaded to support smart meters if they incorporated a display panel that said “Today’s unit price is £0.xx”. I would go further as a service to consumers and show them in ascending order after the evening news on televison [they can do it do for the lottery numbers]. Three-click-switching should be possible on-line.

It looks as if smart meters will be forced on us, despite the vast cost of the rollout. The energy companies will benefit most, so perhaps they can be used in a way that would help the public, who will foot the bill.

The problem is that suppliers will not drop their standing charges altogether. Some suppliers target very high users by offering a high standing charge (reflecting the wholesale standing charge that they pay) and a low price per unit. If we abolish standing charges altogether, then we abolish an element of competition between suppliers. We can abolish standing charges at a retail level only if they are similarly abolished at a wholesale level.

Once the government’s overburden is stripped away the remaining bare energy price will be so transparent it won’t matter if the servicing costs are just lost in the price. The petrol companies don’t separate out the costs for running a pay desk and a shopfront and haulage; they keep these costs as low as they can because the unit price is highly competitive. The challenge with household energy is to isolate all the impediments to transparent competition. There might perhaps be a case for every consumer to pay an annual meter charge for maintenance of the infrastructure which could vary with location. Reflecting NFH’s concerns, presumably there would be no objection to an energy company top-slicing the bill for people who have used a lot of gas or electricity but not given rise to any higher management or supply costs – a sort of loyalty discount. The petrol companies haven’t found a way of doing that for non-commercial customers.

Well said Malcolm.

Whilst makes life simpler to ignore realities we do have the rather large elephant in tthe room that we travel to buy the petrol so WE ARE paying an additional cost to the price on the pump. This inconvenient fact should be acknowledged if the argument is to be fruitful.

The number of petrol stations has halved to 9000+ in the last 20 years so I think we can confidently predict that those in isolated areas will be paying more for their petrol both in actual cost and in the cost to collect it. So rather analogous to people paying more for their fixed charge.

Perhaps Which? could provide all the data with which they and EDF used just in case there is a flaw in the construction of the survey. : )

I am not unsympathic to change – I just know a single price is totally wrong. But I can well understand how EDF may seeing supporting the concept as potentially lucrative given that in harsh winters it will be coining the infrastructure costs hand over fist.

Many don’t make a special journey for fuel. In my case most of the fuel I buy is from the filling station next to the supermarket I visit regularly.

A standing charge will always penalise small users who cannot afford to heat their homes properly. Most people’s only experience of being cold in their home is when their central heating breaks down.

Energy is as essential as the NHS. Everyone is entitled to most NHS services irrespective of their ability to pay. Those who cannot afford to pay prescription charges are, I believe, entitled to claim free prescriptions. Some services such as ambulances and GP visits come to the home, without charge. If we can provide NHS care as a service then surely taxation can pay for what energy standing charges are supposed to cover.

It’s the 21st century and time to scrap standing charges for energy (and water).

Food and housing cost most people far more than energy.

There is a genuine fixed cost in your energy bill applicable to all users – poor or wealthy, low or high user. Why not pay what that costs – why distort the market? The benefits would not be targetted at those in need. That should be a principle of subsidy as is agreed elsewhere.

If energy companies want to keep unit-only tariffs as an option then that would give consumers a choice. I regret the abolition of the two tier unit charge tariffs that capped the amount contributed to the fixed cost. A single unit charge, uncapped, will mean vulnerable, impecunious, high users from necessity will pay a substantial amount more towards fixed costs. then we’ll have to think how to protect them. It’s illogical.
Many may not realise that the cost of raw energy in your bill is less than half – the rest is made up of infrastructure and transmission costs, commercial costs, subsidies and taxes. On an average bill the standing charge is around 12% (and, for all the elderly, more than covered by the Winter Fuel Payment).

As far as the NHS is concerned I believe 88% of people get free prescriptions. Those who do pay will be charged £8.25; however you can get an annual card for (currently) £104 to get unlimited prescriptions. It seems to me, if we ran the country on commercial lines and not supporting party politics, we would give prescriptions free to all those who cannot afford them, but charge those with ample means to pay. £2 a week would hardly break their bank balances. As we spend £8.5 billion a year on prescribing drugs this might help the NHS deal with its financial problems.

Every time we have this discussion you ignore that fact that thanks to standing charges, low energy users who struggle to pay their bills are subsidising large users who are rich. That is simply not acceptable.

Instead, you point out that there are high users who are needy. If they have a genuine need, they can apply for benefits. In other discussions you have pointed out that we should target those who deserve help. Let’s do it.

No one subsidises anybody – each pays what it costs (or should do – if you look at an earlier post I propose that Ofgem ensure that standing, or fixed, charges are the minimum that are fair and justifiable).

I do not ignore those who struggle.

I have pointed out before that there are wealthy low energy users who, under petrol pump proposals, will be subsidised and poor high energy users who would be penalised. I want fairness in this charging, not indiscriminate subsidy. Charge for what it actually costs and then apply subsidy, benefit or whatever we call it to those who really need it, whether high or low users. Help should be properly targetted.

Wavechange, you wrote “Every time we have this discussion you ignore that fact that thanks to standing charges, low energy users who struggle to pay their bills are subsidising large users who are rich”. I don’t understand this comment. The standing charge reflects the fixed periodic wholesale charges that the suppliers pay in respect of meter reading, meter maintenance and the supply network. There is no subsidy here, except that low users who are on a zero standing charge deal are subsidised by others.

Just like your home phone line, someone has to pay the fixed periodic costs irrespective of whether it is used.

NFH – As a result of standing charges, the effective cost per unit consumed is higher for low users. Maybe there is a better term than subsidising, but I am simply repeating what has been said by many others.

Standing charges do not reflect the actual cost of supplying energy to an individual premises, which will depend on whether that is in a built-up or rural area. Presumably they are averaged out.

We fund the NHS from taxation, presumably because it is judged to be an important service. Why cannot we do the same for energy, which is essential for everyone, and let people pay for what they use?

Wavechange – do you think the same approach should be taken with fixed line telephone service? The cost is different depending on whether it is a built-up area or on a Scottish island. Do you think that should be funded by taxation too with only the usage charged for?

You are not just buying energy – over half your bill is for associated costs, some fixed, some that could be regarded as wholly or partially consumption-related.

I see Which? is pursuing another campaign on “petrol pump pricing”. Their stance originally was because they believe the British are incapable of doing simple calculations – or using a comparison site. Now it appears to revolve around saving 19 seconds to do the comparison – on a pricing system that is flawed. They seem to withhold any arguments that detract from that stance, or any changes to those parts of the energy bill that could be removed. I worry at Which?’s lack of objectivity sometimes.

It is difficult to know where to draw the line. It is generally acknowledged that it necessary to have heat and light but that might not be the case with a phone. For those who need a phone for use in emergency, there are a couple of inexpensive possibilities, including BT Basic (assuming that the person qualifies) or a cheap PAYG mobile phone.

Is it too much to ask that households are provided with an energy supply funded by taxation and pay for the amount of energy they use?

Malcolm – Maybe we should have a poll to find out what the public wants. My guess is that simple ‘petrol pump’-type pricing would win convincingly.

The current poll is looking at simple ways of comparing prices, not whether that pricing is fair. Two quite different things. We need to properly examine how energy should be charged fairly.

I don’t think it is fair to make energy pricing so complicated that a large number of people are paying more than they need to. Maybe we should ask the public about that too. If I’m not mistaken, Which? has already done this.

People have been told they should generally not be on standard variable tariffs, but on fixed tariffs. Publicity emphasises that it will save them substantially. Switching has been made easy – it can be done on the phone or on line. It may be Ofgem should ban standard variable tariffs. Again, this does not make introducing a flawed and unfair pricing system justifiable. Deal; with the real problem, don’t paper over the cracks. Which? does not adopt an impartial stance here.

As I have said in other Conversations, many people are paying more than they need to for their energy. Just because you find it very easy to switch, that does not mean that everyone does. Energy pricing is a nightmare, even after simplification. My experience last year showed that switching can present significant problems, though it was straightforward when I switched previously.

The majority of the public don’t trust energy companies – have a look at Which? Consumer Insight. I wondered how much the CEOs of energy companies are paid and turned up this article: theguardian.com/business/2011/dec/06/bonuses-executive-pay-energy-firms

Interesting to look at big pay so if we are going to what about Which? CEO on £330,000, Member with three other senior executives of a Long Term Incentive Plan potentially paying £2.5m.

Not bad for a charity.

We probably won’t see a report on charity salaries in the next magazine. 🙂

Still, if the efforts by Which? can help bring us simple energy prices, it will help many of those who are struggling to pay their bills.

: )

You also probaly will not see a comparison of country consumer organisations and subscription costs either. There is a lot to learn from other consumer bodies, particularly the Dutch who have a higher household penetration rate AFAIK.

Does Which? believe that, irrespective of financial status (or lack of) an unfortunate higher energy user should pay twice as much to have their meter read, to have their bill prepared, to maintain a fixed connection, to pay for smart meter roll out compared to a fortunate low energy user? I think we should be told, because that will be a consequence of “simplistic” energy pricing.

“No standing charge and no tired pricing. Just a KWh unit price, we could all see which of them offer the best deal then couldn’t we?”

Just curious how many tim s a year you suggest people change. I mean obviously some people with time on their hands will be able to change most frquently and those not on the Web – well its their own fault really for not being on-line.

And as outlined in the quote regarding Districy Heating, and the reserach I found from West Australia, the the awkward matter of infrastructure costs can be solved by being made invisible within the single price.

Exit penalties could inhibit switching – some are quite low [E.On – £5 per fuel] others rather high [SSE – £25 per fuel] – those are just two I know from my own experience; the range could be wider than that and it could vary from one tariff to another within the same company.

Presumably, with ‘petrol pump’ pricing, it would have to apply to a standard, universal, fully integrated, plain vanilla tariff with no exit penalties and no discounts for dual fuel, direct debit, and paperless billing included in the headline price. The pricing display would need filters so that customers can choose the options they require and a new pricing order would emerge – not much different to what happens on comparison sites already really.

If we could model the outcomes for the standard all-in-one tariff across the different suppliers, cumulatively adding in the variables, we might discover that the elephant in the room is the government’s overburden as so concisely recited by Malcolm. Strip that away and the standing charge question might be less of an issue. There remains a divergence of opinion on whether meter reading and billing should be at a flat rate [add-on] or as a percentage of consumption [integrated]. I prefer the latter as it gives an incentive to suppliers to bear down on their costs and to users to be economical in their consumption.

John, “incentive to……users to be economical in their consumption.
I believe many are. but their consumption is dependent upon their needs – family size, age, health, house size and insulation etc. None of these are automatically related to wealth. So for many higher users, who are as likely to be poor as some low users,to pay more towards the fixed costs is quite unfair. We need to see those costs that are fixed, and those that a dependent on energy consumption, and remove those charges the government imposes, to arrive at fair charging system. My belief is the fixed cost that would remain would be relatively low, and we would not then be worrying about illogical and indiscriminate “subsidies” from one group of energy users to another. I don’t want to be subsidised by another user, nor do I want to subsidise them – I just want to pay for my costs .

Exit penalties on fixed term contracts with the two companies I deal with are zero. So if the price falls during a term I can change to a cheaper contract without penalty – as I have done. Nor do you need the internet – your phone will do. Which Switch has a phone number to check and switch, for example.

Switching from one supplier to another usually involves an exit penalty if it is within the term of the contract. Switching to an alternative tariff within the same supplier is usually free of charge. I think we have to assume that customers take advantage of switching to more favourable tariffs within their existing supplier – it’s been made easy enough. Not everybody does though, sometimes consciously because they’re approaching the end of their current contract and don’t want to start another eighteen month one [for example]; some just ignore the opportunity [but they can’t then complain about their energy bill!].

Once again I will point out that standing charges mean that high users are paying less than low users. So a company director with a large house will effectively pay less than a pensioner who may be struggling on the state pension plus any other benefits they are entitled to.

For goodness sake get rid of the standing charge so that everyone pays the same per unit. If anyone is necessarily a high user for health or other reasons then they may be entitled to benefits.

John, “Switching from one supplier to another usually involves an exit penalty if it is within the term of the contract.”. Not so with the two suppliers I am with – there is no exit penalty whether you switch to another of their tariffs, nor if you switch to another supplier.

wavechange, some costs are fixed irrespective of energy consumption. Why should one person pay more to have their meter read, their bill prepared, for smart meter roll out than another? Only if you want indiscriminate subsidy.
Large users can be poor as well as wealthy. Low users can be rich as well as of low means. Your argument leads to indiscriminate subsidy. I don’t want to subsidise anyone through my energy bil nor be subsidised by someone else. That should be left to the government through the benefits system.

You have said this many times Malcolm, but at present the millionaire with their mansion is – thanks to the standing charge – effectively paying less per unit of energy than the pensioner sitting in a cold home because they cannot afford to heat it.

If the large users are genuinely poor then they should claim benefits.

We need to target benefits at those who really need them.

wavechange, I would like to see a properly balanced and objective summary of al the elements that make up an energy bill. Those that are clearly related to consumption, those that are less clearly linked, and those that are not. My starting point has always been to know the true cost of your energy supply – not distorted by oversimplification or by scares about subsidy. As commercial organisations energy companies should bill us, or be guided to bill us, for what it costs. Then those who are genuinely needy should be helped by the state.
I think Which? has taken a partisan stance, so is unlikely to give an unbiassed summary. Certailnly it has not addressed issues raised to date. Perhaps the CMA will deal with it. no doubt a whole range of organisations will present their views for consideration.

Malcolm – As well as those who are comfortable in their own homes, there are people dependent on food banks, people in debt and those who are struggling to pay the rent. I agree that we should look in more detail at how energy bills are made up, but perhaps we should also be looking at energy costs in the context of a substantial number of people who are struggling with their bills.

Meanwhile, most of the energy companies seem to be doing OK for themselves.

wavechange, people in genuine need should be helped by the state. They have the better knowledge to target assistance. Untargetted suybsidy from commercial organisations is not sensible. Why, for example, should a wealthy low energy user be subsidised by a poor high energy user (a consequence of “petrol pump pricing”? Let’s leave assistance in the hands of those who can best direct it at those who need it.

We are not going to agree Malcolm, despite having exchanged many posts. Perhaps if I ignore your posts and you ignore mine, and we can get on discussing numerous other issues where there is much more common ground.

wavechange, this is a new conversation in which people may join who are not aware of previous discussions. It is therefore worth reiterating points for discussion that may have been raised elsewhere. I am not trying to convince you – you have a clear view – but I hope the views and information you, I and others provide help develop opinions on this topic – including our own! 😀 .I wonder if some people, for example, don’t realise that the cost of the energy they use accounts for less than half of their energy bill?

I’m sure we will both carry on contributing, Malcolm. It’s mainly the issue of standing charges that we seem to argue over. 🙁

I am keen to find out more and to get more people involved with our discussions. If a mobile phone company put up contract prices by 50p per weeks there would be numerous comments but despite the widespread distrust of energy companies and many people in ‘energy poverty’ there is little input. I assume that those who are most affected are not sitting in front of their computers.

Bills and meter reading maybe but lets talk big ticket items like power stations and grid costs, not forgetting the delivery to the meter. Infrastructure costs cannot be ignored as a blip. Sure you can through into a single price but I think for many we realise that hiding the cost leads to other problems.

Lets go for honesty and then perhaps we can reach some acceptable formula on infrastructure costs. There is so much smoke and mirrors – witness the Govenments green policy costs being in energy bills – that the citenzenship are confused and bamboozled – and angry.

The Govt. is great on big ticket items like HST and green meters but really needs to get a grip on more basic spending.

I agree with you Diesel. I have shied away the subject of the capital infrastructure because (a) it is incomprehensibly massive to the ordinary consumer, (b) I don’t know enough about how the costs are allocated out at the moment, and (c) a substantial part of any new capital investment is paid for through tax reliefs and allowances, European funds, development grants, government subsidies, and contributions from land developers: it’s a pretty fuzzy mix. Ofgem knows all about it I hope and presumably has a handle on who pays what to whom, how much, and what for. Ofgem is concerned with the gas and electricity markets and doesn’t really tell us much about infrastructure. DECC is the responsible government department that controls and promotes the production side of energy supply but it doesn’t exactly go out of its way to inform us about it. Smoke and mirrors alright. There are opportunities to make profits at several levels of the supply chain and, like any good pyramid, the pricing structure at the bottom level [us] has to carry the entire weight of the profits and levies in each of the upper layers. I am hoping that the upcoming Competition & Markets Authority investigation will shed a lot more light on the background to energy supply.

Some while ago I asked for Ofgem’s views on energy bill items that were consumption related and those that were not. They replied as follows. Essentially, it seems, the energy companies need to pay amounts that are determined for networks, and to the government for green taxes, subsidies, warm front, carbon tax, smart meters etc., but how they pass these charges on is left in their hands.

Q). Are all transmission (network) costs included in the unit charge, and therefore dependent upon consumption, or are parts of transmission costs that are not consumption-related incorporated in a standing charge?
A) Not necessarily (Ofgem produces general estimates on what goes into an average bill not specific bills from specific companies so we wouldn’t be able to speak to a specific tariff of a specific company.) A standing charge is just a way of recovering overheads that are unrelated to energy use. There is nothing that Ofgem has done that stops suppliers setting the standing charge at zero, I believe that some suppliers are doing this. For those not charging standing charges, you would expect their tariff wholly to reflect their costs.

Q.) I assume network charges includes both a connection maintenance cost as well as a “flow usage” cost?
A.) Yes, maintaining the pipes and wires element of the systems.

Q.) Are the costs of environmental and social obligations all, or part, consumption related; if so, which parts?
A.) With environmental costs, they are not demand related, the number is reflective of Ofgem’s estimate of how much the different environment measures are adding to a suppliers cost.

Q.) Is the charge for smart meter roll out a fixed charge for all consumers, or consumption related?
A.)With smart meters when the roll out takes place it would be a fixed charge, in the same manner as with the current meter stock. The Department of Energy and Climate Change have some background material on this https://www.gov.uk/smart-meters-how-they-work

Q.) I note vat is charged on the whole bill, so presume we pay vat on environmental and social charges, smart meter roll out, as well as the “commercial” elements. Can you confirm this is so?
A.) Yes, the VAT itself would be levied in the same way that VAT would be levied on other goods and services.

To summarise: essentially the Government forces green costs for the future benefit of mankind and then charges VAT on the costs. Lovely. Avoid the flak of it being a tax spend item by loading it to the existing households.

Not to mention the abdication from very long term energy planning and the use of the free market to provide the commercial thinking on what is required. It would be laughable if it were not so tragically inept.

However the lesson must be that people must have it made explicit how their bills are made up. Hiding these things leads to an unknowing population being misled for populist gain.

Paying VAT on a government levy is an absolute disgrace; I am convinced most people are unaware of this impost. Bills might have tables or pie charts on them showing the make-up of the bill but the implications are not transparent.