Have you studied your energy bill recently? Well yes I know that you have glanced at it to pay it or to check the direct debit amount but who in their right mind reads 3 or 4 pages of numbers and standard text.
Now is the time to take action
Since 31st March 2014 there have been some changes to energy bills which should encourage you to examine them in a little more detail. All energy suppliers must now show information on your bill on their cheapest tariff available to you. So you can figure out at a glance whether you are on the right deal or not.
So let’s take a typical example, an extract from page 1 of an npower dual fuel bill (which is 4 pages long in total).
Here we are shown the projected annual cost of the household’s electricity and gas (based on the last 12 months usage) along with the current tariff (in this case an April 2015 Price Fix tariff).
Below this is the lowest cost tariff available to the householder, an Online Price Fix October 2015, which will save around £88 on last year’s energy usage (364.77 on electricity and £23.19 on gas). Since the April 2015 Price Fix tariff has no early exit charges we can make one call to the energy supplier and ask to be transferred to the new lower rate. This also has no early exit penalty so in 3 or 6 months time we can happily switch again if there is a lower rate available.
Some new rules to the energy game from Ofgem
To try and get clearer information for households in 2013 Ofgem, the energy industry regulator, made some changes to what energy companies can do.
From 1st January 2014 energy suppliers were only allowed to offer a maximum of four different tariffs for each fuel. This was to try and stop the “smoke and mirrors” confusion when an energy supplier had dozens if not hundreds of different rates which were difficult to compare. This change has improved pricing transparency although do be aware that energy companies will always be thinking of ways to “game the system” and make more money out of their existing customers.
From 31st March the cheapest available tariff has to be shown on your energy bill (as explained above). Also to try and simplify things energy companies have been instructed to use a new Tariff Comparison Rate (TCR) when communicating with their customers. The TCR is the cost per kWh for a typical energy user. It is calculated assuming the household uses 13,500 kWh of gas and 3,200 kWh of electricity. It means that you can easily compare the unit cost of each kWh on each tariff offered by every energy company. The downside is that it is not customised to your own energy use so if you use a lot more or a lot less energy than average it may not represent what you actually spend. Personally I feel it is a little confusing but it does help give a quick and easy way to compare prices before using your specific annual energy usage to work out the best deal for you.
From 30 June 2014 energy suppliers were also required to switch households on higher tariffs to their cheapest variable rate. This sounds great. Call me a cynic but some of the energy companies have come up with a way round this rule. The rules require them to only offer variable rates so this does not include fixed rate deals with a specific end date. The smarter energy companies will offer good rates on deals with a specific end date and keep the variable rates high. That way a household has to actually do something to save money on their energy bill.
Let’s take a look at one specific supplier, npower, in the West Midlands (electricity and gas prices do vary slightly by region). This is using the TCR for the average energy user. Prices were available in August 2014 and are for direct debit customers (you pay much more if you don’t pay by direct debit):
Example Gas TCR
- 4.2p per kWh – Online Price Fix October 2015 – no early exit penalty
- 4.46p per kWh – Price Fix June 2016 – no early exit penalty
- 5.04p per kWh – Standard SC
- 5.08p per kWh – Intelligent Fix April 2017 – exit penalty
So an average energy user who had internet access to their account would be better off on the 4.2p kWh Online Price Fix October 2015 rate than on the Standard SC rate. This is a bit odd since fixed rates in other non-energy sectors are often priced at a premium as they offer certainty of pricing. What is tells me is that npower are one of the energy providers who are playing games – under Ofgem rules they have to switch people on older tariffs to a variable rather than a fixed rate so they will keep their variable (standard) rate artificially high. As an average energy user you would be spending much more than you needed to on the Standard rate with npower.
By the way I don’t think npower are any worse than the rest of the big six energy suppliers (British Gas are pretty bad for their standard rate gas supply); I just wanted to use a specific example of the games the industry plays.
So what should I do?
If you have never asked to change your tariff then you are almost certainly on an expensive and misleadingly named “standard rate” tariff. Either switch to a new supplier with a much better rate (over 2 million homes have already switched away from the big 6) or at least take up the offer on your energy bill and switch to the cheapest available tariff with your existing supplier; do make sure their is no exit penalty for switching out of this rate so you can take advantage of better rates in the future.