Dec 1, 2010

How to beat the energy price rise

Energy suppliers stand accused of making bumper profits by imposing price increases that are out of kilter with their own costs.

Cartoon of shivering family - How to beat the energy price rise 

Many of us suspect that the energy companies make excessive profits at our expense and now it seems the official regulator agrees.
On Friday, Ofgem announced that it would "review the effectiveness of the retail energy market" after finding that the suppliers' profit margins had risen by almost 40pc since September. It said the amount that companies made from the average dual-fuel customer had increased from £65 to £90.
One by one, Britain's gas and electricity suppliers have been raising their prices as winter approaches. Customers of Scottish Power are the latest to feel the squeeze – their electricity prices went up by an average of about 9pc on Thursday.
Just two of the big six providers, npower and E.On, have yet to show their hand, although some experts expect them to raise their prices within days. One company has taken a different approach: EDF Energy has frozen its prices until March next year.
British Gas caused particular anguish by raising gas prices by 7pc just days before telling the City that it expected its full-year profits to beat market forecasts. The company said it was responding to the rising price of wholesale gas and the cost of maintaining the network and meeting its environmental obligations.
But many suspect that the utility firms are quicker to raise consumers' bills when wholesale costs rise than they are to cut them when the market price falls.
"Wholesale prices have fallen by around half since hitting their peak in 2008 and yet over the same period customers' prices were cut by less than 10pc," said Adam Scorer of the watchdog Consumer Focus. "Consumers will feel that suppliers didn't make cuts when conditions allowed it, but are covering their profit margins as wholesale prices nudge up."
But customers are not powerless in the face of these price increases. As EDF's price freeze shows, it's not always true that they all raise their prices at roughly the same time. By taking a few moments to look at their current tariff and compare it with the best on the market, consumers could save hundreds of pounds a year on the energy costs.
Here we explain how to get the best deal and look at some of the pitfalls you should watch out for.


Energy suppliers have a vast array of price plans, but the most expensive of all is usually the "standard" tariff, which involves the supplier sending you a printed bill at the end of each quarter which you then pay. Anyone who has not actively switched to a new plan will be on this tariff.
Customers who switch from a standard tariff to a best-buy price plan stand to save about 30pc, which is equivalent to about £300 a year for a typical household, such as a three-bedroom semi-detached house with gas-fired central heating.


Today's best-buy tariff will typically become a little less competitive in a year's time, when the supplier brings out a new version in a bid to attract new custom. It will repeat the process the following year, until in a few years it is not much better than the standard tariff.
"Energy tariffs have life cycles," said Mark Todd of Energyhelpline, the price comparison service. "They start out as the best deal on the market, then gradually slip down the rankings over the years until they are saving you very little money." This is the way that suppliers punish customers' apathy.
Npower's Sign on Line series of tariffs illustrates the point, although other suppliers operate in similar ways. The fact that the latest version of this tariff is number 20 shows how often new versions come out.


There is a vast array of different price plans on the market. Which?, the consumer group, found recently that for an average household in the East Midlands there were 89 different tariffs available for gas and electricity where payment was by direct debit.
All these tariffs fall into one of three basic types, Mr Todd said – the expensive standard ones, the cheaper online variety and fixed-rate deals. Better still, there is no need for customers to investigate every tariff on the market to work out which is best for them; a price comparison service will do all the legwork at a couple of clicks of the mouse or in the course of a quick phone call.
These services have all the tariffs on their database, so when you enter details such as your postcode and consumption figures, they will instantly calculate which one will be cheapest. In most cases you can then, if you wish, click on a link that will set the switching process in motion there and then.
Make sure you use a service accredited by Consumer Focus, the statutory watchdog. There is a list on its website (


The very cheapest tariffs will require you to pay by monthly direct debit, and the monthly amount, which is variable, will be decided by the supplier on the basis of actual and expected consumption. But if you prefer to know how much energy you have used and how much it cost before you pay the bill, it is still possible to find a tariff cheaper than the standard one.
Take a typical household in London. The cost for someone who has never switched will average about £1,166, Mr Todd said, while the cheapest tariff, EDF's Online Saver 7, would cost £867, a saving of just under £300. If you don't want to pay by monthly direct debit, EDF is still the cheapest at £938 – a saving of £228 compared with the standard tariff but £71 more expensive than the direct debit option.


Some tariffs come top of comparison sites' tables only by virtue of rebates that you receive after a year. But as prices are variable, the price could rise before then; if you switch again you will miss out on the rebate, meaning that choosing a different tariff at the outset would have been cheaper.
Watch out, too, for charges to leave a tariff. "Most discounted tariffs have an exit penalty," said Joe Malinowski of
He added that the best tariffs were often open to new customers only. "Switching to the best deal will normally involve going to a new supplier," he said.
However, EDF's best-buy Online Saver 7 is available to the company's existing customers. Also, if your supplier won't switch you to its best deal when you call – call centres often won't offer online tariffs, Mr Todd said – try switching via its website, or via a comparison site, instead. Alternatively, tell the company that you will switch to another firm; this may encourage it to offer you a better deal.
If you move to a new home, you will start on the energy company's standard – ie expensive – tariff by default, even if the previous owner had switched to a better deal or you had done the same at your previous address. So look for a better deal without delay.
Remember that dual-fuel deals are better than buying separately in the vast majority of cases.



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