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The less energy I use, the more I pay per unit. Sound fair?

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Are you a high energy user or a low energy user? Personally I fall into the latter category. Is it right that low energy users like me have to pay more per unit compared to people who consume more?

I live in a compact (OK, I mean small!) flat with two other people. We’re mainly out at work during the day and when we’re in, we take care to keep our energy use to a minimum.

We put on an extra jumper when it’s cold, turn off lights and always make sure that we turn the TV off at the wall when we’re not using it to prevent racking up a big and scary energy bill.

At this point you may be giving me a metaphorical pat on the back for being so energy conscious. But it appears that not everyone approves of my low usage. Despite what they say about promoting green ways of living and low consumption, energy companies seem to be punishing me for my energy-conserving habits.

Kilo-what? Using less, paying more

The problem is that I end up paying a higher average price per unit than a high energy user. Let me explain why: by charging substantially more for the first set of units in a ‘tiered tariff’ or by having an expensive daily ‘standing charge’, energy companies ensure they don’t make a loss from low-energy users like me.

They’re recouping the cost of getting the energy to my door, which they need to do, but I have no idea how much of this is actual cost or how much is extra profit made from low energy users. Ultimately this means that the less units you use, the higher the average cost of those units.

This seems very strange to me and makes me question if it’s a disincentive for people like me who try hard to save energy. Moreover, for many it’s a real problem – often low-energy users are some of the most vulnerable people, who may be in fuel poverty.

I recognise that fixed costs, which we all have to pay regardless of energy use, will probably represent a higher proportion of low users’ energy costs. However, I think that both Ofgem and energy companies need to ensure that the proportion of fixed costs is kept to a minimum and that there is adequate transparency over what these fixed costs are.

Help us tackle tariffs – email Ofgem

Our campaign to tackle tariffs addresses exactly that issue. The simple tariff that we’re proposing here at Which? means that everyone would pay a daily standing charge, set by Ofgem at the minimum possible amount to cover costs.

On top of that we’d pay for our units, meaning that we all pay the same for a kilowatt no matter how long we leave the lights on. I think that sounds fairer.

So if you want to join us in campaigning for fairer energy tariffs, email Ofgem using the box above and tell us what you think in the comments.

Do you feel penalised for being a low energy user? Or perhaps you have a large family and are grateful for the current system?

Comments
39
frugal ways says:
26 October 2011

Ask British gas’ managing director a direct question;

When recent price rises by British gas were announced, the MD stated that one of the major factors in needing to raise prices was because of, “lower consumption” – when I’ve asked British gas, energy saving trust, OFGEM and the DECC if this is “fair” or appropriate, in light of telling us all to save energy and use less of it, they have no comment or don’t even reply.

Why not?

Perhaps a question from Which? would get an answer?

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Dave D says:
26 October 2011

ABSOLUTELY!

I have said this in posts to other Convo’s over the last few months and so far Which? don’t appear to have acknowledged the issue – I’m delighted that this convo has come up as it suggests that Which? are, after all, looking at this perverse system.

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brat673 says:
24 November 2011

For the domestic consumer there should only be a few tarrifs from each company. All tariffs should start with a small standing charge. Electricity / Gas should be priced per unit. The economy seven tariffs Should be Night & Day and perhaps PM top up. There should be no charge for however you choose to pay your bill!!!! Perhaps £5 reduction for paying VDD & £5 for passing a meter reading on( per quarter). Some of us are unable to qualify for Dual Fuel or will the power companies sell us oil as we are deprived of gas???? Is this what we want? Odds on we will not get it!! I am sure we are all fed up of being rate tarts.

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Dean says:
26 October 2011

I still don’t understand why there is any difference in tariffs at all.

We all have pipes going to our house with either gas or electricity in them. There is no difference in quality or density, the supply is always on (as long as you are paying your bills) so why are there different prices?

To make as much money as possible out of everyone, regardless of their usage, time Which? really went into bat for us

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John Ward says:
26 October 2011

I am very much in favour of the Which? tariff proposal. It is for that reason that we recently switched to Cooperative Energy which which, for both gas and electricity, has a set standing charge [with regional differences] and a set consumption charge irrespective of quantities used. This might not be the cheapest [that would depend on consumption levels either side of the steps in the comparator tiered tariff] but it seems to be the fairest and the supplier promises to be competitive over the long term. Up to a point I would not object to the unit price rising in line with consumption but that could bear heavily on people who have to keep the heating on at home all day or have other special needs.

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frugal ways says:
26 October 2011

Eon’s standing charge shot up during the recent price rises, yet no mention of it in the letter blaming troubles in Japan and Libya.
The national grid price increases are not due to come into effect until 2012, a fact that Eon refuse to answer, as they are increasing the price in 2011.

The big six energy companies also own or have in their group of companies, those that own/control the infrastructure that brings the energy to our homes, so they are blaming these (in part) on one hand, when they know full well it is all part of the same company!

Confusion costs, so I’m with Dean on this one, it’s not clearer tariffs that we need, it’s limit each company to just one tariff/price per unit, make the bills transparent, if they want to charge us a percentage of our bill, for commission payments on the thousands that swap their provider, then we should be told so that the appropriate action can be taken.
It cannot be right that an energy company can issue bills to a household, yet when senior billing staff are questioned, they don’t have the faintest idea of how they arrived at and charged the billed amount.
Energy companies preach “energy saving measures” but in our home, despite implementing more than an energy company’s energy saving team recommended, since December 2010, we are told we have used MORE units of energy than any of the previous 2 years, the reply after hours of phone calls and online questioning was, “we don’t know!” Absolutely shocking.

Lest we forget, those that swap and find the best deal are almost always paying what we would all have been paying anyway, those that don’t/can’t swap, ie the majority, are paying over the odds.

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Longley Shopper says:
27 October 2011

As an aside, I seem to recall that it was exposed a while ago that modern, so called efficient, boilers, actually use more gas than old ones. Could that explain your (frugal ways) extra energy use in spite of making changes? Did you upgrade your boiler in the process?

Sorry, off topic I know.

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frugal ways says:
28 October 2011

It did indeed include a boiler replacement, from a G rated over 30 year old back boiler, which was either on or off no thermostat controls, for a spanking new boiler, the cost of which will never pay for itself, even if we hit maximum savings figures each year, put out by the energy saving trust.
British gas informed us a month or so after fitting that they would expect gas use to remain the same as a new boiler used as much gas as an old boiler, something not mentioned in “energy saving” figures or projections.

– top whack paid for full double glazing, inc doors
– one less adult living in the house for 4 months
– removal of gas fire
– double outside rendering applied
– the latest cavity wall insulation
– an extra layer of loft insulation
– room thermostat fitted
– thermostatic radiator valves fitted (tested both using them and not)

weve had the meter replaced, pipework checked by two engineers, pressures tested, boiler tested (its only 10 months old), all british gas can advise is that we wait until next years statement comes in because they “dont know” why we have used more units of energy.
If it wasnt draining our money, it would be laughable.

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Dave D says:
26 October 2011

I’m so pleased to see that Which? have started this convo and associated e-mailing campaign.

I am an “average” user of electricity (according to the ONS’s annual average kWh usage figures on their website) and a “low” user of gas (same source of data).

But to be honest, I don’t see that what I use makes any odds: what matters is that anyone who has taken steps to reduce usage, either because they are very environmentally conscious, or because they have little money and feel they MUST use less, or for any other reason, should NOT be in the position where no matter how much tehy reduce consumption they see little saving on their bills, which is effectively what the current system means.

As Wavechange has posted on other convo’s, charging more for the ‘excess’ units over a certain threshold would be fairer, so that heavy users are encouraged to use less and so that heavy users pay a little extra which might help with people in ‘fuel poverty’ when they sometimes need a little extra time to pay.

Best of all, a flat rate, and no standing charge or a standing charge that is set nationally. A ‘post code lottery’ of standing charges is equally unfair and as nonsensical as the current ‘use more pay less’ system.

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rarrar says:
26 October 2011

A standing charge in some form is necessary to cover the costs of maintaining the supply to a property and the admin costs of running the account, the more we switch the higher the admin costs are.
If you pay a standing charge this cost is transparent , if you pay on a 2 tier tariff its not so obvious .
Its not so much that the energy gets cheaper the more you use as small quantities cost more to deliver.

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Dave D says:
26 October 2011

I understand the logic behind what Rarrar says above, but I cannot agree: the energy companies have made monumental (some would say obscene, and I agree) profits since Thatcher deregulated them in the 80’s. They continue to make vast profits now. If the standing charge, or the ‘hidden’ equivalent, was necessary to cover the supply costs then there would be less profit made by the suppliers.

On top of that, both Osborne and recently British Gas (see post from Frugal Ways above) have told us that energy prices need to rise because we are using less. Osborne said this by way of trying to wriggle out of the fact that the 3rd quarter saw further economic poor results rather than the improvement that he and the condems have been promising since taking office and the BG MD said it by way of justifying further price hikes with the implication that profits would not be so healthy next quarter if prices stay the same and hence the economic recovery would be further stalled. If the standing charge (or equivalent) was really needed to keep the infrastructure in good order then Osborne and BG could have said so explicitly when seeking to justify price rises. Both know that the general public and the media would find such an argument more palatable than just trying to blame the economic situation on people spending less on gas and electricity so to me the fact that neither tried to use that reasons means it is not true and would have been quickly exposed as untrue had they done so.

Anyway, even if a standing charge is absolutely necessary, having a nationally set one that is agreed by Government, would be perfectly satisfactory as the supply network (national grid) is just that – national – and so there will be no variation from region to region or supply company to supply company. Before the utilities were privatised there was, if I recall correctly, a standing charge, it was the same over the whole country and the infrastructure was maintained to at least as good, if not better, standard than it is now. A national standing charge would still promote clarity in billing and fairness for all, so whether it’s needed or not, there is a better way than the current pricing structure.

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rarrar says:
27 October 2011

I think the standing charge is different for different “regions” of the country which may pre-date privatisation .

It would be interesting to see what the profit levels for energy companies are in terms of % of turnover and how this compares with other industries.

Of course profits are a feature of a privately run industry unless the companies are set up as “not for profit” and the privatisation of the electricity and gas companies is down to the parliament “we” voted for and some would say we benefited with lower personal taxes.

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Chris says:
26 October 2011

Yep, it’s down to the ever present smoke and mirrors approach to selling employed by all the energy suppiers.
The first so many Kwh at a higher unit rate is a way of hiding the standing charge.
Of course the justification of a standing charge at all is questionable.
Is there really any cost involved in providing supply even before you’ve used any energy at all?
Standing charges seem to me like giving the energy company a helping hand with their overhead costs before they’ve actually done anything for me?
Then there is the targeted reduction in Co2 everyone goes relentlessly on about. Yet the more you use and the more Co2 you vent, the less per unit you pay.
That doesn’t really seem sensible does it?

How about no standing charge and the first so many units, say 75% of UK household average, at a standard lower unit price, followed by the next so many units at plus 10% on unit price, the next so many at plus 20% and so on.
And make this tariff structure law.
Then low users, and perhaps also those people making an effort to use less actually benefit, and high wasteful users rightfully pay more.

Of course there is still another factor little talked about.
Lower national consumption of energy works like the economies of scale in reverse. Lower energy supplier income has to cover the same original overhead costs, which it won’t so the unit price is forced up. This has been a contributing factor in recent price rises.
The only way to sort that one is by a combination of reduced profit and trimming overheads. Not a natural way to go for private enterprize operations is it really?
They could always be renationalise?
I’d be in favour because a cartel is hardly free competition forcing prices down is it?
I won’t be holding my breath though, common sense has never been a strong point in the area of UK energy supply.

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James Tallack says:
27 October 2011

Hi Chris. Making unit prices progressively more expensive has a lot of merit. However, in a competitive market where suppliers are able to offer more than one type of tariff, those consumers who would be worse off with such a tariff structure would simply switch to a tariff where they wouldn’t be penalised (a flat rate, for example). So, yes, such a tariff would have to be imposed on consumers by law to make it work at all.

Aside from removing choice of tariff from consumers, there are also some interesting practical challenges to these so-called ‘rising block’ tariffs. One argument that the blocks in the tariff should be sized according to household size to address the issue of low income-high consumption households (and, by definition, high income-low consumption households who would draw a disproportionate benefit if blocks for all households were sized equally). This information is not routinely collected or kept up-to-date (this issue is also raised in discussion of rising block tariffs for the water industry in the independent Walker Review – http://archive.defra.gov.uk/environment/quality/water/industry/walkerreview/final-report.htm) and would be difficult and costly to collect. The alternative is some form of self-certification, although this could be subject to fraud/misreporting.

So – lots of interesting questions and ones that we will certainly be considering as we take forward our work on energy.

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Dave D says:
27 October 2011

@James,
Your points above are good, clear and make a lot of sense, but the issue of low income high use households (and the well or people in the reverse position) merits some exploration I think.

Back in the 70’s and early 80’s, when I was living and old enough to have at least a rudimentary grasp of energy pricing, and pre privatisation, we had a nationally set standing charge and a nationally set price per unit (electricity) or per therm (gas). To the best of my recollection we did not have any different schemes even for the country piles of the landed gentry.

As far as I can remember the system worked because the poor (into which category my family undoubtedly fell, at least using the very commonly used free school meals measure) were paying a realistic price that had some bearing on the actual cost fo the energy, might (I cannot remember) have been in some way linked to inflation) and certainly was NOT designed to make profits for shareholders. All but the most poverty-stricken could therefore pay their bills and, significantly, many modern energy guzzling gadgets did not exist and the “standby button” was a space-age futuristic invention that had not arrived yet.

Conversely the wealthy did not moan about paying the same as the poor, even if they were in single-person, low-user households (or if they did, they did it behind closed doors), and I attribute the lack of complaint to the fact that everyone knew that they were paying the same as everyone else, so it was a fair system.

Now, all that historical rambling IS leading somewhere: if the price of energy actually reflected the cost of generating (electricity) or extracting and piping (gas) AND if maximising profit for shareholders was NOT in the equation, then I am firmly of the opinion that we could (and indeed should) return to a single tariff, imposed by law, applicable to all users.

The only reason that this will not happen is because the shareholders in the energy companies would probably start a civil war if any government made this move. Nationalisation is a potential solution, but the shareholders would still be in uproar and in the present financial situation I doubt whether the economy could stand the strain of doing so.

IN short this means that we are almost certain to stick with an unfair system which will continue to benefit the rich (esp shareholders and heavy users) and will continue to penalise the poor and low users.

It’s just another example of how, at least for the last 30 years of not longer, the poor are robbed and the rich receive their money.

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David Conquest says:
26 October 2011

I have been advocating for YEARS for the system of energy charging to be changed so that the more profligate the user, the more they are charged.

Simply put, this means that for a first “wedge” of units, there is a low charge. After this, within calculated usage, the cost gets progressively higher. As to the standing charge – piffle. These costs, i.e. fitting meters, reading meters etc., can be ameliorated over the whole band of charges, thus, no need for a standing charge. Implementing such a system would immediately take hundreds of thousands out of fuel poverty; particularly pensioners and those who are aware of their energy usage and are therefore thrifty.

That this should be put forward as a “Conversation” is scandalous. Had Which? (or more properly, the Consumers’ Association) taken up this matter when I first proposed it some six years ago, there would be no need for the conversation. Shame on Which?!!

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James Tallack says:
27 October 2011

Thanks for your comment, David. We understand your disappointment, but, as you’re aware, Which? (CA, as was) campaigns on a range of important issues, and it’s only as a result of the recent priority we’ve accorded energy that we’ve had the opportunity and the resources to examine this issue in more detail. Furthermore, with its key focus on tariff complexity, Ofgem’s Retail Market Review presents an opportunity to influence the debate that was just not there even 12 months ago.

To be clear, we are not proposing that suppliers’ operating costs be included in the standing charge. We agree that these and the cost of energy should be recovered in the unit charge. However, our proposal is designed to take account of the fact that some of the costs passed to energy suppliers by the monopoly distribution businesses (ie costs over which they have not control, and, in fact, are set by the regulator) are chargeable at a per customer (rather than per unit) level, and relate generally to providing a physical connection to a network rather than to the usage of that network. The size of some of the social and environmental obligations placed on suppliers by the government is also determined by the number of customers a supplier has, as opposed to the aggregate amount of energy used by its customers (the basis for some of the other government obligations). However, it seems extremely regressive to make all households make the same contribution to the cost of meeting these obligations and we see no clear justification for structuring them in this way.

I have responded to the idea of banded tariffs where the unit price gets progressively more expensive above.

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John Ward says:
27 October 2011

There are also some powerful economic arguments in favour of this proposal. Since a high proportion of the energy used in this country derives from imported oil and gas [and even from electricity imported from France via cables under the English Channel] then it would help our balance of payments if we all used less. I am convinced that companies could do a lot more to reduce consumption – the evidence of their waste is all around us and is priced into our goods and services [as well as making our exports uncompetitive further harming the balance of trade].

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Frugaldom says:
27 October 2011

I’m with Dean on this issue, too – clarity of pricing structure and a level playing field is what’s needed.

I’d like to see a chart that listed exactly how much per unit people are being charged. For those of us living in old properties in rural Scotland (cold and dull at the best of times), there are few options for ‘free’ insulation, mains gas or, depending on financial circumstances, central heating, so keeping power useage low is extremely difficult.

Our weekly use without heating is currently around 90 kWh, which means we end up paying 14.18p per unit after incorporating the standing charge. If we do without hot water and limit cooking to a bare minimum, it costs us 16.63p per unit. It’s ludicrous, but we do it because we simply cannot afford to burn what little money we have, closing our eyes to these penny differences and seeing only the couple of pounds it ‘saves’ us overall.

An abolition of the standing charges would save me over £90 a year – that’s 6 weeks electricity. I seriously grudge paying for the priviledge of having the stuff even if it had never to get used.

I can see the point of making the first x amount of units less expensive, but how would that affect those of us on low incomes who need to rely on electricity alone through 6 months of freezing weather? Regardless of it being electricity, gas, oil, coal or logs, heat costs money and we need more of it the further north we live. There is zero incentive to ‘go green’ and reduce our carbon footprint, even if we could afford it.

I’ll finish on a sour note, as the following annoys me – there seems to be far more people who don’t give a stuff what it costs than there are who do. If consumption drops, prices rise and then the Government will probably feel the need to increase the tax to compensate for their losses. For those of us stuck with pre-payment meters, we are penalised. Our money needs to be paid up front before we get any power, there’s practically zero risk of running up serious debts to the power companies and yet the rates per kWh are scandalous (IMO). ‘Cheap rate’ is fine, if you have it, but have you tried heating an old house with electric storage heaters when it’s -10C outside and you’ve no insulation?

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wavechange says:
27 October 2011

I would like zero standing charge and companies to sell energy at lower cost for moderate use, charging higher prices and making their profit from bigger (domestic) consumers. We need to encourage everyone to be more frugal with their use of energy, and some need much more encouragement than others.

This would penalise larger families but sooner or later we are going to have to work towards controlling population in the UK. A recent estimate suggested that the UK population is likely to rise to 70 million in the next 16 years, and world population does not bear thinking about.

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Dave C says:
27 October 2011

A different view! We have no gas connection, no oil boiler, no LPG tank etc. Our energy is totally provided by electricity which we try to buy from a supplier who sources from renewable generation and non-fossil (ie nuclear) as much as possible but with cost a factor too. Because we heat the house, cook, provide hot water and run all our “appliances” using electricity our consumption is high. Should we have to pay more per unit because of this? As for reducing energy consumption, we have insulation to a high standard, draft proofing, low energy light bulbs and do everything we can to save energy/money by switching off lights etc when not in use. We also minimise waste in areas such as a “spare/guest” bedroom by keeping the thermostat low and the curtains closed.

In addition we have chosen to invest in renewable energy such as solar panels to help reduce our net use of imported electricity.

Should we be penalised by higher unit charges for the electricity we use? Perhaps those who are lucky enough to use gas for heating and hot water should be charged more per kilowatt.hour of gas they use, over some minimum figure, which is likely to be a much larger kWh useage than ours of electricity?

Also remember that the incentive is there for all of us to use less energy, which will inevitably reduce our bills, whatever the tariff, and will also reduce our collective carbon footprint and our reliance on fossil fuels, either directly with oil and gas, or indirectly via a lower use of electricity generated from coal, oil and gas.

Simplify tariffs, yes. Make energy available at reasonable prices for all of us, of course. However, don’t forget that many who are off the gas grid in rural areas are forced to use (more than the national average amount of) electricity to heat, cook and provide hot water for our needs.

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James Tallack says:
27 October 2011

@Dave C

It’s quite clear that there is not a one-size-fits-all solution here and there may have to be policy adjustments made in other areas to compensate for the impact of what we have proposed on all-electric households.

For example, I recently read a paper by the Fuel Poverty Advisory Group (FPAG) that made some interesting points about electricity-only consumers (FPAG has a particular interest because around 1m of the 2.5m all-electric households are in the lowest income deciles. The paper makes the point that electricity bills currently bear a much higher level of government carbon-reduction policy costs than gas bills. This is because funding for renewable electricity (the Renewables Obligation), emissions levies on electricity generators, and the Feed-in Tariff for microgeneration, such as solar PV panels) are – logically, some might say – recovered through charges on electricity bills.

The paper proposes that this could be offset by transferring a much greater proportion of the costs of non-electricity-related carbon-reduction policies, such as the Carbon Emissions Reduction Target (CERT), which pays for free or subsidised energy efficiency measures in people’s homes, to gas bills. The effect on gas users would be negligible as they would see a reduction in their electricity bills (virtually all homes with gas have mains electricity), but the gains for electricity-only households quite substantial.

So, no easy answers, but this is an important issue that we are aware of and one that we will not lose sight of as the debate progresses. With the replacement programme for CERT about to be consulted on we will ensure that the situation of electricity-only consumers is represented.

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David Conquest says:
27 October 2011

I’m sure that one university or another has done research into energy requirements for different types of households. These figures could be used to give a fair figure for the successive “wedges” which I propose.

As to single source users, the figure derived for a particular household could be combined so that for single source users the initial “wedge” would be in effect the sum of the inital “wedges” of those with dual energy sources. This isn’t rocket science and could be introduced quickly. As I (and others) have said, profligate users should be stung for excessive use.

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Stow says:
27 October 2011

As a frugal user BUT now with solar panels I am looking for a company that has NO standing charge and a level charge per unit whatever I use. There only seems to be one company for that. Why do we need to pay a standing charge when the meter and equipment are already there? A flat rate seems to be beyond these companies while they can get more money out of us by confusion.

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Devon Jones says:
27 October 2011

As one of “the 99%” I suggest that the UK needs only one supplier to provide both electricity and gas. This should be a State Monopoly (nationalisation) and would result in a vast improvement in efficiency.
i) The management costs of the single company would be considerably less than that of a multitude of competing companies. ii) The employment costs of the many thousands of staff non-productively employed in vast call centres would be saved. Similarly the lighting and heating costs. iii) Perhaps the call centres could be converted to flats to help alleviate the housing shortage. This would give work to many unemployed workers in the building trades. iv) Our political leaders claim that householders should spend their time seeking the cheapest tariff. If such ‘leaders’ were to try to select the most favourable tariff for their own properties, I fear that they would consider it quite acceptable for perhaps 20 million householders to waste their time regularly using the internet for this futile past-time. v) The upper management of the present companies could be offered jobs in the Inland Revenue’s department responsible for tax evasion – they may have ideas, unknown to the existing staff, which could be invaluable in collecting much needed revenue from many multi-national companies.

I suggest that Which? or perhaps some other organisation should circulate a petition requesting re-nationalisation of our energy suppliers. Although our government would probably require EU approval, there is some hope that by the time we have a million signatures to a petition that the EU will have disintegrated, and that our elected representatives will have regained their powers to govern the country.

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Em says:
27 October 2011

I’m not sure I follow the logic of this Conversation.

I’m a high energy user. Therefore I buy most of my units at off-peak rates; it’s the only way I could afford them. And so, because they are cheaper than full tariff, I must therefore be profligate in my use of energy???

The reason I “enjoy” lower kWH rates, but probably still end up paying more for my total energy needs than most households, is because there is no mains gas available in this village. So I heat my house – built and insulated to Scandinavian winter conditions – using electricity. Even then, I don’t get the best tariff because the dual fuel (electricity + gas) option is not available!

So yes, electricity tariffs are not always fair in every respect, but the rapidly increasing price per kWH is a lot less fair on those of us who do not have access to mains gas for heating.

And should I really take the argument that cheaper units results in more waste to its logical conclusion? Since I’ve already paid my standing charge for unmetered water, I really must try harder to leave all the taps running!

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Jessica Moreton says:
28 October 2011

Hi Em, thanks for commenting.

It sounds to me that although you are a high user, you are aware of your energy consumption and try to ensure that you use it as cost effectively as possible. I do understand that people with large families or electrically heated houses can’t be as energy efficient as me. Thus my gripe is not with high users – it’s with the way that energy companies structure their tariffs. I essentially end up paying more per unit in comparison to a high user. To me this seems illogical because it acts as a disincentive by encouraging me not to be so careful with my energy consumption. After all, if I leave all the lights on – I’d use more units yet the more I use the cheaper each individual unit becomes. I could end up wasting lots of energy but not really increasing my bill that dramatically. On the other hand if I was rewarded (with cheaper initial unit pricing on top of the fixed rate) I’d be more inclined to remain energy conscious and reap the rewards of a lower energy bill.

Just to add – our affordable energy campaign is aimed at enabling all UK households to pay less – not just the low users. For more info see here: http://www.which.co.uk/campaigns/energy-and-environment/

I hope that has helped to explain my point – please ask if you have any other questions.

Jess.

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Em says:
31 October 2011

Hi Jess,

Thanks for taking the trouble to reply to my post.

I do understand your point of view about the illogicality of high initial unit and standing changes from the consumers’ perspective, particularly when we are all being encouraged to reduce energy consumption. But if we consider the economics and practicalities of electricity generation, I can’t see how it could change that much.

Nearly everyone who is connected to the grid has the potential to use over 10kW of electricity at the flick of a switch. So, even if your flat is empty most of the time, the generating companies still have to ensure there is sufficient plant and capacity to supply electricity when you are at home.

As you come in from work, you probably switch on the lights, turn them out as you go to bed, then maybe turn them on again early the following morning. Although your own usage is frugal, your demand is still on top of many other customers who all have similar patterns of consumption. The generators cannot respond instantaneously to this varying load, nor can nuclear and coal-fired plant be shut down overnight.

Hence cheaper units are offered during periods of low demand, to encourage the use of power that might otherwise just go to waste, and to help even out the daytime load on generating plant by shifting some of the demand for heating.

Then there are the seasonal peaks. Christmas day is one example; the oven, tree lights and television are switched on and millions of kettles are boiled following the Queen’s speech. Some of this generating capacity sits idle during the summer months, perhaps undergoing maintenance, but idle none the less and not earning revenue.

In summary, a standing charge, whether recovered as a fixed amount or by adding it to the cost of initial units, does seem to me to be a fair way to recover the investment made on behalf of each domestic consumer. And I would like to see the use of differential pricing and load switching increase further, as wind and solar power become a larger proportion of the mix. This will encourage us to make the best use of these renewable energy sources at the times when they are available.

I don’t wish to sound like a spokesperson for the electricity industry (I’m not) – just an applied physicist with a fair understanding of how these things work in practice. Keep fighting the consumers’ corner for lower electricity prices, but please consider how your chosen pricing model will work within a privatised industry that requires a lot of capital investment – especially to get more renewable sources online.

Em

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Ciaran Mc Ferran says:
28 October 2011

I comment that it has for long been the practice to sell energy in a way that ENCOURAGES greater consumption, instead of DISCOURAGING it. If the powers that be were serious about the environmental effects of increased carbon dioxide production, lower energy use should be REWARDED, for instance with free or very low tarrifs up to a defined level, with the unit cost ramped up the greater the consumption.

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littlegreycat says:
8 November 2011

I find this topic as presented by Which? to be very misleading.
It seems to be mixing in the overall energy costs and profiteering, and the tiered charging, which to me are two seperate topics.
Also, the whole argument seems muddled.

Firstly, on tiered tarrifs.
One argument put forward by Which? is:
“I essentially end up paying more per unit in comparison to a high user. To me this seems illogical because it acts as a disincentive by encouraging me not to be so careful with my energy consumption”
What? Saving more money per unit NOT used is seen as a disincentive??
Surely you have the opportunity to make greater savings with smaller changes to your energy consumption. Unless you see this as a competition to be first onto the cheaper tarrif?
This sounds more like sour grapes because someone else is paying less per unit. However they are having to pay quite a bit more than you in total before they can enjoy this dubious privilege.

The tiered model is found across all areas of purchasing, from the 10% off for buying six bottles of wine, to the free delivery when ordering over £50 worth of good online.
If you buy in bulk you expect a discount – this is a fundamental basis of all trade.
It reflects the reduction in overheads and increase in profit in doing one large transaction instead of several small ones.
The model (not necessarily the actual charges levied under the model) is a good reflection of the actual costs of supply of service – initial cost for all the infrastructure required to deliver the service and then costs per unit to produce the energy used. The more energy you use, the cheaper per unit it is to deliver to your home. How is this unfair or wrong?

Apart from the issues of electricity only houses amply covered above, if this method of charging is so wrong why restrict this model to electricity consumption?
Why not for example charge people more for the petrol/diesel they use on an ascending scale the more they drive? Add an extra 10p/liter for every 1,000 miles travelled. This should encourage low energy useage. Of course this would also penalise rural communities.
If applied to the motor transport industry this would remove an enormous number of lorries from the road and reduce the fuel consumption dramatically. Or put all our costs up. Oh, of course this would only apply to priviate individuals. Industry would still benefit from economies of scale. Unless of course you are proposing that this electricity charging strategy should also be applied to industrial useage?

My memory may be failing, but I seem to recall a while back there was a push to remove standing charges and instead recover the infrastructure costs from the unit price – supposedly to allow low energy users more control of their outgoings instead of forcing them to pay a standing charge which might make up a significant part of their overall charge, and which they could not reduce by energy saving. I believe there is (or was) a similar approach for telephone use, with a special low user charge band.
So what is the problem with a higher basic rate which recovers the infrastructure charges without a big up front hit, then the usual discount for bulk users?

One issue is the structure of the charging strategy and the intended benefits.
A completely seperate issue is the way that the industry is using (and/or abusing) the charging structure.
A fair charging structure can still be applied unfairly by the industry.
This is a seperate issue from tarrif structure and requires industry regulation to mandate clear disclosure of how costs are apportioned with enough legal muscle to prevent abuse. Even if the energy companies are all foreign based and foreign owned.

If you want to subsidise low energy useage, by all means do this. However make it abundantly clear that this is a levy on all users to subsidise low energy users and help avoid fuel poverty. Much more friendly that the current massive levy on all users to subsidise the affluent few with houses which have a large south facing roof and who can afford £10,000+ to invest in a cash cow which does very little to generate extra energy.
[I would have dipped my snout in the trough of free money, but my roof isn’t large enough.]

So, how about this plan:
(1) Set a benchmark for a minimum energy budget for a household – enough to keep the poor from freezing over winter.
(2) Set the initial tarrif to supply this energy budget more cheaply than the supply costs, and make it clear that this is a subsidised tarrif.
(3) Set an average user tarrif above that, from which all can contribute equally to the subsidy.
(4) For those who chose (or have no choice but) to use yet more electricity, apply the usual market rules of discount for bulk supply.

This reduces pressure on low income/low useage households, if balanced correctly should result in the average user paying much the same, and avoids electric only or other larger/rural users from being unfairly penalised.

Please, though, keep the issues seperate.
(1) Avoiding energy poverty
(2) Avoiding profiteering by the energy companies.

Only propose draconian taxation of higher energy users if this is applied across the board to all forms of energy use.
Higher electricity charges as an encouragement to contraception (if I understood one poster correclty) does seem a little harsh.

Cheers

LGC

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David Conquest says:
11 November 2011

I think that some of your analogies are false – certainly buying in bulk will/should result in a discount, but this is simply due to the delivery methods, nothing to do with the actual amount consumed. We are also urged by all and sundry to conserve energy; no-one (to use your example) is exhorting us to drink less wine (unles it’s the Temperance league!).

I have to agree with Chris (below); proper regulation and a comprehensive charging system would give fairness, especially to those currently in fuel poverty – as I pointed out earlier, necessary usage for families could be calculated and applied so that a great number removed from the huge number in fuel poverty at the moment. Single-source users could be acommodated, but this requires a will from Government, and I don’t see this at the moment.

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littlegreycat says:
11 November 2011

With respect, I think your response is muddled 🙂

Buying energy in bulk is to me very similar to the other purchasing examples.
Bulk buying discounts cover a number of things – from production, delivery, storage and point-of-sale costs to cash flow involved in holding the stock.
Standard business model.
For electricity there are the fixed costs of plant, and after that the energy company (to a point) has a lower per unit cost of delivery the more you consume.

Ummm….and all sorts of people are exhorting us to drink less, from medics to the police. This is one reason that most/all drink has alchohol units on the labelling.
There is also pressure on the supermarkets to reduce the amount of cheap booze on health and public order grounds.

Most importantly, there are two seperate issues; is it a reasonable abstract business model (yes) and is it a green business model (perhaps not as much).

I have responded to Chris below as regards “fairness”.

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Chris, Gloucester says:
10 November 2011

littlegreycat,
Not sure the arument is muddled at all.
The top line says “The less energy I use, the more I pay per unit. Sound fair?”
I say no.
Legally binding reduction in CO2 emmission targets, fuel poverty and even green stealth taxes on bills make energy supply different to normal market force pratices like lower prices for bulk buying or even BOGOF.
Like it or not the UK is legally obligated to produce less Co2, simply translated use less energy.
To date just about the only effective approach to a reduction in use has been through increase in cost, for whatever reason that increase has come about.
At the same time we have fuel poverty growing and an almost universal tariff system that rewards on a unit cost basis high users.
That cannot be right.
We have to address fuel poverty and we have to reward those who make an effort to use less.
Lower unit cost rewards for higher users as we have now simply does not do that.
A rising unit cost as more energy is used will do that.

Yes there needs to be safeguards for homes with only one fuel type.
Yes there needs to be safeguards for homes with high occupancy density etc.etc.
None of this is that difficult so long as the basic concept is accepted.

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littlegreycat says:
11 November 2011

Chris,

two responses to try and keep the issues to a manageable size 🙂

Incidentally I think the use of the term “fair” may be clouding the issue.
Also you do seem to have skipped over my four point plan at the bottom of my post above.

My main complaint about the “fair” argument was the justification:
“I essentially end up paying more per unit in comparison to a high user. To me this seems illogical

**because it acts as a disincentive by encouraging me not to be so careful with my energy consumption** ”

I say again “What?????”
The higher the unit cost of energy the less incentive there is to reduce consumption?
Can someone please explain to me the logic behind this?

Is this not like saying the higher the unit cost of petrol the less incentive there is to save fuel?

The expected behaviour if you accept this argument seems to be:
“Someone is paying less per unit than me – it isn’t fair!
Right – I’ll show them! I’m going to leave all my lights on so there !!!”.

?

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littlegreycat says:
11 November 2011

Chris,

second part.

Clearly splitting the two issues of business model and green taxation and trying to avoid the use of “fair” (darn, failed comprehensively below).

Preventing the standard business model of discounting for bulk purchase in order to implement a form of ‘green taxation’ is a viable approach – charging is directly related to consumption and the more you use the more you pay, without a reduction of the pain once you go over a certain threshold. There is no ‘victimisation’ of higher energy users, just no reward.

Ramping up the rate of charging as consumption rises (ignoring any initial subsidy to help reduce fuel poverty) is not “fair” unless:

You implement the same strategy across all forms of energy consumption – electricity, gas, bottled gas, fuel oil, perhaps even solid fuel for heating and lighting.
Also, transport is an energy user and polluter.
So to be “fair” you must also charge more for motor fuel the more people use.
Oh, and you need compulsory negative air miles so that the greater distance someone flys (no, make that transport miles because ships, busses, trains all consume and pollute) the more they have to pay per journey.

So loading the green taxation onto metered domestic electricity and gas supplies is easy and straightforward to implement.
That doesn’t make it “fair”.

Note that I am not disagreeing with green taxation – I just do not agree with some of the proposed approaches amd justifications.

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frugal ways says:
11 November 2011

“The less energy I use, the more I pay per unit. Sound fair?”

This shows that the “save energy – save money” claims of the big 6, the DECC, OFGEM and the energy saving trust for what they are, almost completely false.
Notice how they will not comment here and on other public forums!
They will not defend their claims because they can’t. People are getting wise to it.

Energy provision surely is a basic human right?
Provision of energy to homes should be protected from all but minimal profits, say based on a per home amount?
All was reasonably well with energy prices, but in recent years, the similarities between the big 6, make them almost identical in the way they provide energy.
Tariffs, price rises, misleading bills/statements, even procedures when they have a problem (check meter – refer to energy saving team – refer back to payment dept – never a straight answer!)
The managing director of British Gas has already told us how it is, prices have risen, in part, “due to lower consumption” – this is proof that the statement made originally made is accurate.
Now all concerned need to answer as to how this pricing fits in with telling us all to “save energy” and their claims that “saving energy saves you money”

Which? are a long established consumer support organisation, how can the big 6 energy companies, the government dept, the regulator OFGEM and the taxpayer/private funded energy saving body, the energy saving trust, not have a single word to say on the matter?

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Liz says:
16 December 2011

I don’t think a standing charge is a good idea. I use the minimum amount I possibly can and for me,and I think for many others, the fairest option would be a fixed unit price for every unit used whether a lot or a little.

I am really fed up by being told that there is good competition between the big companies and that I can lower my costs by at least £200 if I hunt around and change. I managed to keep my annual bill last year to just under £500 by doing without. Sadly that is the answer..
The only way I can save money is by using as little fuel as possible and for that I am penalised as my average cost per unit is much higher than that for some one who uses a lot of fuel.
I wish politicians were not so keen on private sector owning everything. Gas and electricity orices and of course train fares used to be transparent and easy to understand when they were publicly owned. Now sadly lack of respect for people and greed dominates. And governments can sit back and wash their hands of those responsibilities to the hardship of many.

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Longley Shopper says:
16 December 2011

@Liz and all like minded readers:

Absolutely agree with you Liz.

The only way we’ll ever see clear, transparent and even **remotely-possibly** fair pricing for Energy, Water, Rail Fares and so on is if we ever get them re-nationalised.

Sadly that absolutely won’t happen under the con-dems, nor will it happen under any Tory government (did you know that Tory is the Irish word for “robber”, according to the dictionary) and I’m afraid I have zero faith that any other UK political party in existence at the moment would do it either, so I think we have to keep campaigning to get organisations like Which? to actually fight our corner very vociferously – which in itself doesn’t seem to be as straightforward as one might think, but it’s our only hope.

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frugal ways says:
16 December 2011

Longley,
I noticed you did not mention the previous government in your post!
Nationalising won’t happen, don’t think the european laws will allow it anymore, as signed away and changed by our previous “leaders” before the current gang got in.

It is quite obvious to me, that regulators have been gradually having their powers eroded, or shifted, to incorporate “working with the industry” – customers have been left hanging out to dry. Take trading standards, a former bastion of protection for customers everywhere.
A quick phone call to their office at county halls, would often result in straight, clear advice and action that could be taken, alongside the individual.
Now it’s diverted to consumer direct, who state they will pass it on to trading standards, who will call back in 3 days (for example) but never do as consumer direct haven’t passed it on, or trading standards cannot advise any further to what consumer direct have already said. Besides which, trading standards no longer investigate on behalf of consumers, now they prefer to find a big news story (to justify their funding?) and work with the industry concerned to try and change their views/actions.

Where does the customer go?

The regulators are spending millions of OUR money every year, but doing nothing. Have a look at the current Orange debate on which? forums, where are Ofcom? Are they answering any people’s questions? Not a sausage from them. Even when Orange staff tell customers that Ofcom have already cleared their contracts as being fine, still not a peep from them.
Instead they advise to complain through a body/process that also tells customers they don’t have powers to investigate, once again the individual is left with the only option to take out a small claims action themselves, this is plain wrong.

Ofgem doing nothing with energy companies
Ofcom ignoring customers over mobile phone contracts
OFT no longer taking on individual cases

Regulation is the key, strong regulation with bite, regulation that teaches ombudsmen in all fields that there is only one priority, the priority of the people that fund them.
I would take it a step further, I would make the regulators/ombudsmen fight the corner of the customer and bill the company complained against, for it.
They would be staffed by a minimum 60% public, whom have no connections with the “industry” whatsoever by law.

Something’s got to give….. just a matter of time before it does.

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