Domestic gas and electricity bills may be at record levels but a report last
month from Ofgem, the energy regulator, indicates that millions are clueless
when it comes to finding the best deal. Switching energy provider or package
might seem a headache, but it is painless and could save you hundreds of
pounds a year. Here is Times Money's guide to the market.
Where are prices going?
The wholesale price of gas has tumbled from £1 to 79p a therm over three
months, but this saving has not been passed on to energy customers, whose
bills have doubled to an average of £1,300 in three years. Consumer Focus,
the watchdog, has called for price cuts “at the earliest opportunity”,
echoing the Prime Minister.
Joe Malinowski, of TheEnergyShop.com, expects prices to fall by about 10 per
cent - “most likely early next year”. But the Energy Retail Association,
which represents suppliers, emphasises that there is a lag between wholesale
and retail prices because suppliers buy in advance.
Why switch energy deal?
The report by Ofgem indicates that 46 per cent of energy customers are
“inactive” buyers “who have either never switched or have done so only once,
and say that they are unlikely to switch again in the future”.
Clare Francis, of Moneysupermarket.com, the comparison website, says: “If you
are on your provider's standard tariff and are paying quarterly by cash or
cheque, you could typically save about £300 a year by switching to an online
tariff and opting to pay by monthly direct debit.”
How to compare deals
Twelve comparison websites are accredited by Consumer Focus and listed at
ConsumerFocus.org.uk. Visitors enter their postcode and details of their
current supplier and latest electricity, gas or dual-fuel bill - or average
energy use - to view the best deals, by price, in their area.
Comparison sites may have other useful features. Moneysupermarket.com, for
example, features customer reviews of the big providers, as well as its own
star ratings. It also has a number of chat forums, where users can discuss
energy issues with each other and the website's specialists.
The “supplier performance” pages of the Consumer Focus website are updated
monthly and list the number of complaints made against suppliers.
Single or dual fuel?
Many people still buy their gas and electricity from different suppliers in a
hangover from when that was the only option. However, dual-fuel deals -
where one supplier provides both - tend to be much better value, and make
for simplified billing.
But do not assume a better price. In certain areas, two single fuel bills will
work out cheaper. Comparison websites may not indicate this.
Other tariffs explained
Most energy customers are on their supplier's standard tariff - what Mr
Malinowski calls “the worst possible deals”. The best are online tariffs,
paid each month by direct debit.
These tariffs are so-called because customers sign up to them and can submit
meter readings (see below) online via the supplier's website, and receive
their monthly bills by e-mail. Note that Ofgem's report cautions that many
customers who switch to an online tariff believe that they are now on their
provider's best deal for good. In fact, better online deals with the same
provider may soon become available - so keep checking prices.
Fixed and capped tariffs, meanwhile, are, as the name suggests, fixed or
capped for a set period. These may cost more than standard tariffs, but offer
insurance against steep price rises. A medium-use household would pay £1,428
a year for a fixed dual-fuel tariff with British Gas to 2012 - against a
current standard tariff of £1,328 a year.
Given the likelihood that prices will fall, experts are wary. Ms Francis says
the deals are “less attractive now with falling wholesale gas prices”.
Economy 7 tariffs are an alternative. These use two-tier meters to charge
customers an “economy” rate of about a third of the standard rate for seven
night-time hours (typically midnight to 7am) and a higher-than-standard rate
at other times. To make a saving over the standard tariff, households must
be disciplined and make at least 20 per cent of their electricity use in the
economy hours.
The top deal
The best energy deals vary by region and according to circumstances. However,
Moneysupermarket.com says that, “in general”, the online Click Energy 6
tariff from British Gas is the cheapest available. A medium-use household
would spend £1,057 a year on the dual-fuel deal - saving £271 on the
company's standard rate.
Meanwhile, a customer satisfaction report from uSwitch.com, another comparison
website, indicates that Scottish and Southern Energy wins the customer vote,
with 69 per cent satisfied. Npower is named the worst provider, with only 46
per cent satisfied. Note that the latter company is being investigated by
the energy regulator after allegations of unfair billing by Times Money.
Incentives
Several reward schemes, such as AirMiles, are available on energy deals.
However, Ofgem's report says that their value is “very small in relation to
a consumer's total bill”.
How to switch
You can switch supplier by following the instructions on comparison websites
or by contacting the company to which you want to switch. You may wish to
contact your existing supplier first to explain your decision and check
whether it will offer you a more competitive deal.
If you go ahead, the switch itself should be smooth - with no interruption to
energy provision - but takes about six weeks, including the standard 28-day
notice period on deals.
Read your meter
Unless you provide regular meter readings - once a month or once a quarter is
best - the price you are billed will reflect a (sometimes very) rough
estimate of your energy use.
Making a reading and passing it on to your supplier is straightforward and
could save you money. It will also spare you a nasty surprise should your
supplier make its own reading and bill you for any shortfall in its estimates
- backdating its claim by up to six years.
If you are not sure how to read your gas or electricity meter, contact your
supplier, or see the relevant guides at Moneysupermarket.com.
Other ways to save
Switching to the best deal is just one way to save on energy. For tips on cutting
your energy use, read David Budworth's article on pages 8-9 and consult the
Energy Saving Trust's website at EnergySavingTrust.org.uk.
Meanwhile, help in the form of grants or social tariffs is available to those
on lower incomes, as Lauren Thompson explains on pages 4-5.
Cost can be a postcode lottery
Regional variations in energy prices mean that customers in some areas pay
hundreds of pounds a year more than those in others for the same deal - a
gap that suppliers put down to distribution costs. For example, a medium-use
household would pay £1,220 a year on EDF Energy's standard dual-fuel tariff
in South Wales, but £1,126 a year for the same deal in the North West.
According to Ofgem's report, customers in Scotland and Wales are less likely
to switch than those in England. The regulator says that this may be down to
the “strong identity” of the former regional incumbent suppliers, and also
the high proportion of electricity-only customers in isolated areas (see
case study, above) who cannot receive mains gas and so miss out on dual-fuel
deals.
The former incumbents do not necessarily offer the best deals in their areas,
however. Meanwhile, electricity-only customers should not assume that
switching isn't worthwhile. There are significant differences between
tariffs. In Newcastle, for example, a medium-use household would pay £513 a
year on npower's standard tariff, but £417 a year on EDF Energy's standard
tariff.
CASE STUDY: Electrifying savings
Pam Cowen Wright switched electricity supplier in August. The 36-year-old runs
a recruitment business from the four-bedroom, 16th-century farmhouse near
Mold in North Wales that she shares with her husband and son. She says: “We
inherited our electricity deal from Scottish Power when we moved here in
March, but were paying
£1,000 a year. That seemed too much, so we compared deals online, at
Moneysupermarket.com, and switched to British Gas's Click Energy 5 deal,
which was an estimated £450 a year cheaper.”
Her house, in common with many rural properties, is not connected to mains
gas: “We have to get in Calor gas for cooking and heating, which costs about
£700 a quarter. It also means we can't take advantage of dual-fuel tariffs.”
In a development typical of the energy market, Mrs Cowen Wright's new deal was
replaced by the Click Energy 6 last month. Prices for customers on the
original deal were raised so that the new tariff is now better value. She
says that she will “without a doubt” consider switching again in the near
future.
