Energy Tariffs

Should you cap your energy prices?

By seamour.rathore@consumerchoices.co.uk

What are the advantages and disadvantages of capping my energy bills? Is there anything I need to watch out for?

Energy prices have risen a massive 38% in 2008 so you may be thinking about “capping”, or fixing your energy prices to protect you from price increases next year. Before you make a decision consider the following issues first...

• 1. Where are domestic energy prices going?
• 2. Could energy prices fall?
• 3. Do you want the certainty of a fixed price?
• 4. Caps health warning
• 5. Exit fees for capped deals
• 6. Should I take my bill online?
• 7. Tips to keep costs down

1. Where are domestic energy prices going?

There are several forces at work which could influence where prices are going. Firstly, the wholesale price of gas. From a peak in the summer, the price of gas and electricity has fallen again. That’s because oil prices have come down from a high of $144 in July to around $60 a barrel now. The price of oil and the price of domestic energy are closely linked. But there is a concerted effort by oil producers to keep prices high by producing less.

2. Could energy prices fall?

Domestic energy suppliers are coming under pressure from consumer groups and the government to pass these price savings on to consumers. But the jury’s out on whether the suppliers will comply. In fact, they argue that they didn’t pass on the full cost of this year’s wholesale price rises to customers.

Scottish Power (www.scottishpower.co.uk), for example, said its costs had risen 65% since February, but it had only increased its customers’ bills by 34% in September.

Nevertheless, Consumer Focus, the new independent champion for consumers, has demanded suppliers cut their prices in line with the sharp fall in the price of oil. Ed Mayo, chief executive of Consumer Focus said in October: “We want immediate action from energy companies to reduce their prices in line with falling oil prices.”

“Oil prices have been falling since July, yet consumers have seen unprecedented rises in their gas and electricity costs.”

3. Do you want the certainty of a fixed price?

How important is it for you to know how much your regular bills will be regardless of whether the cost of your gas and energy has gone up or down? If you fix your bills you’ll know how much you’ll pay but won’t benefit from any price drops which may happen as a result of consumer and government lobbying.

The other risk being run by fixing your bills is that certainty comes at a price. Experts have estimated that if you go for a fixed rate deal, you will pay around 20% more than customers on a standard tariff at the moment. But if prices rise more than 20% your costs will not go up.

So it really is a case of taking a view on the price of energy for the next year and deciding whether you need the certainty of a cap.

4. Caps health warning

Caps lock you in a certain price for a set time, generally between one and three years. But if you want to switch in the interim as prices have come down and you want to go back to a variable tariff, you may need to pay exit fees from the capped deal. Suppliers were not allowed to charge exit fees until recently and many still don’t.

5. Exit fees for capped deals

The following is a guide to exit charges for current fixed or capped tariffs. Don’t worry about getting charged if you move home, though, as any charges are unlikely to apply. But, again, check the terms and conditions of your new tarrif.

• E.ON Fixed Price (until July 2010) - No cancellation fees apply. For full details visit www.eonenergy.com
• Scotish Power Fixed Price Energy (until December 2009) - This contract may be subject to a cancellation charge of £30 for electricity and £20 for gas. For full details visit www.scottishpower.co.uk
• EDF Price Protection (until October 2009 or September 2010) - This contract may be subject to a cancellation charge of £20 for electricity and £50 for gas. For full details visit EDF
• npower Price Protector (until January 2010) - This contract may be subject to a cancellation charge of £50 for electricity and £50 for gas. For full details visit www.npower.com

6. Should I take my bill online?

If you have easy internet access are happy to be billed on-line (paperless) rather than by a bill through the post, it’s normally possible to make a tidy 10% saving. But beware capped “internet tariffs” which can look falsely cheap. If you are comfortable not to cap, a variable rate internet tariff is the best bet.

7. Tips to keep costs down

• There are usually savings to be made if you are prepared to pay by Direct Debit. But you must keep your supplier up-to-date by filling in your own accurate meter readings every quarter.
• Insulate your home and look at other energy saving ideas. They may mean an initial investment, but should save you money in the medium- and long-term.
• Make sure you check your bills and compare them once a year to ensure you are on the most competitive deal. Use our online comparison tool to compare prices and find a better deal that suits you.

Comments