Energy Guides

Energy suppliers’ exit charges

By Hazel Cottrell hazel.cottrell@consumerchoices.co.uk

This guide explains what exit fees are, why energy suppliers charge them, and how to avoid paying them (18/12/09).

Switch away from certain energy tariffs and you could be hit with “exit charges” of up to £30 per fuel. But what are these charges and why do energy suppliers’ apply them?

In this guide we answer these questions, as well as showing you how to avoid paying exit charges.

What are exit fees and why do energy suppliers charge them?

Exit charges, also known as exit fees or early redemption penalties, are fees which energy suppliers charge customers who switch away from certain tariffs within a set period of time.

They are designed to dissuade people from switching and are a fairly recent development in the energy market. Suppliers only started applying exit fees en masse around summer 2008.

As more and more people started looking for the best energy deals, and switching energy tariffs became more common, energy suppliers needed to find a way to lock people in.

They did this by applying exit fees to their best energy deals – that way they could attract customers in with low prices and prevent them from switching again for a set period of time.

Which energy tariffs come with exit fees?

When energy suppliers first started charging exit fees, they applied them only on their fixed-rate tariffs and capped tariffs.

This meant that customers knew what price they were locking into. Many people were happy to commit to these tariffs for a set period of time, in exchange for the guarantee of fixed prices.

However, recently energy suppliers have started applying exit charges to their cheapest variable-rate tariffs.

For example, Npower’s Sign Online 17 comes with exit fees of £20 per fuel for customers who switch away before 31 March 2011, and anyone who switches away from British Gas’ Websaver 6 before 1 August 2010 will be charged £30 per fuel.

Chris Eagle, commercial manager at Energychoices.co.uk, says: “The fact that energy suppliers are now applying exit fees to variable-rate tariffs signals a worrying new trend.

“Because these tariffs are variable, the price could go up or down, and could become much less competitive over time, but customers won’t be able to switch to a better deal without paying a penalty.”

If you don’t know whether your current tariff has exit charges, you should check your supplier’s website or call its customer helpline.

How to avoid paying exit charges

The easiest way to avoid paying exit charges is to choose an energy tariff that doesn’t have them. That way you will avoid getting locked in with any one energy supplier.

If you are comparing energy tariffs using Energychoices.co.uk’s energy calculator, you can check which tariffs apply exit fees by clicking on the ‘click for details’ tab under the name of each tariff.

The cheapest energy deals often come with exit charges, but there are exceptions. For example, at the time of writing, First:utility’s Smart Online Saver V3 is the cheapest deal available to average users in the Midlands and East Midlands and it comes with no exit charges.

Having said this, if the cheapest deal for you does come with exit charges, it doesn’t mean you should dismiss it completely. You need to decide how likely you are to want to switch again within the exit fee period and weigh this up against the savings you could make by switching.

If you are tied in to your current tariff with exit fees, you may be best waiting until the fee period is over before switching to another tariff. However, you’ll need to do an accurate energy comparison and some sums to check this.

Depending on your current tariff, you could save hundreds of pounds a year by switching to a new one, so it may be worth paying the £60 or so exit fee to escape.