Cut the cost of your energy bills
After two significant price hikes in 2008, gas and electricity prices are finally on their way back down this year. In May, British Gas announced cuts of 10% to its electricity prices, matching the 10% cuts to gas prices back in February.
That’s not to say that the rest of the big six haven’t made substantial cuts too: Scottish & Southern Energy, the second biggest energy company in the UK, reduced its customers’ gas bills by 4% and electricity by 9% in March this year, and while npower, E.ON and EDF Energy made no changes to gas prices they have recently reduced their customers’ electricity bills by 8%, 9% and 8.8% respectively. Scottish Power cut electricity by a comparatively low 3%, but reduced gas bills by 7.5%.
But while this is good news for consumers trying to keep a tight rein on their finances, the current round of cuts still doesn’t make up for the considerably heavier price increases that were introduced last year. British Gas, for example, increased dual fuel bills by 25%, electricity bills by 9% and gas by 35% in July 2008 – and this came after 15% price hikes at the start of 2008.
“Energy bills still remain stubbornly high. They rose by 43% in 2008 and have only come down by about 5%. So far this year, we’ve seen most suppliers give paltry price drops,” says Mark Todd, director at energyhelpline.com.
Time to take action
So what should you do if you’d like to cut your energy bill? Instead of passively waiting for further price cuts, you need to be a bit more proactive, suggests Todd. “Cheaper energy deals are out there, but consumers need to search them out – the best deal will not come to you.”
Switching to another supplier could be an idea. But because there’s no one answer to the ‘who’s the cheapest supplier?’ conundrum, comparing packages through an approved comparison website, such as energyhelpline.com, TheEnergyShop.com or uSwitch.com (if you don’t have internet access, contact Consumer Direct on 08454 040506 for a pricing factsheet and general advice), is the best way to find the best deal for you, depending on your location and usage.
You can also see find the best value deals by postcode on the Interactive Investor website.
Those who have never switched stand to save up to £350 just by changing providers, according to Tom Lyon, energy expert at uSwitch.com, and even those who have switched can still make savings.
Six million consumers already switch energy supplies every year, according to energyhelpline.com, but this sounds less impressive against the 12 million homes that have still never switched. If these consumers made the move, not only would they save themselves money, but as Todd points out, the pressure would be on the energy suppliers to make more significant price cuts.
“If suppliers knew that consumers would no longer sit on expensive tariffs that racked up profits, then that is when bills would really start to come down,” he says.
A word of warning before you switch: it might not always work out cheaper. Research last year from East Anglia University showed that a third of us ended up paying even more after switching suppliers. Although changing suppliers might initially save you money, if you’re not careful, your total bill will creep up again.
Other ways to cut the cost
If you’re not sure that switching to another provider would slash your bill, there are other things you could do to lower the cost. For a start, you can make savings by paying your bills by direct debit.
“Suppliers will usually offer a variety of payment options, such as paying weekly or quarterly, by cash, postal order, cheque, direct debit or on a prepayment meter. You could save, on average, between £75 and £176 a year just by changing your payment method,” says Audrey Gallacher, customer service expert for energy watchdog Consumer Focus.
As your supplier doesn’t have to send out paper bills or reminders, process cheques or take calls from customers making payments, it saves money and in turn passes these savings on to the customer.
Obviously, the fixed amount going out of your account every month won’t always accurately reflect the amount of gas and electricity you’ve used. Throughout the summer months, even if you end up wearing a cagoule more than you do your sunglasses, you will still need considerably less heating and lighting, whereas the colder, dark winter months will inevitably cost you more. Individual suppliers handle credit and reimbursement differently, but contact your supplier if you feel you have been overcharged.
“Your account goes in and out of credit, so if you’re owed some money in September your supplier might make the point that you’re going to use more gas and electricity in coming months, but if it’s in March it will probably pay it back,” Lyon explains.
Also remember to contact your supplier if your situation changes in any way that would affect your energy consumption – for example, if your children move out or you have your loft insulated.
Get regular meter readings so you have an idea of your typical usage and can make sure you are being charged fairly. Consumer Focus recommends that you call your energy supplier with your actual meter readings when you get your bill.
Also try to steer clear of pre-paid meters. Although they are helpful from a budgeting point of view as they let you know how much money you’re spending, they nearly always work out pricier.
“Consumers using prepayment meters get a rough deal, with average annual prices now running at £1,247,” says Gallacher. This is compared with Consumer Focus’s average of £1,071 for those on direct debit.
Just as paying by direct debit reduces the cost because your supplier has lower administrative costs, online packages, where you either manage the bill yourself or at least set up your account online, are also cheaper because the supplier doesn’t have to do this and can pass on the savings in your final bill.
Besides opting for paperless bills and paying by direct debit, make sure you are on an appropriate tariff. Despite the obvious money and time-saving incentives for changing tariffs, many of us never bother to switch from the standard tariff we are automatically put on when we first sign up.
Firstly, get your electricity and gas from the same provider with a dual fuel tariff, as it almost always works out cheaper. Select an online dual tariff and you’re on to a double winner.
For most people, dual and online tariffs remain the cheapest, but there are a few other tariffs to consider. Economy7 plans charge cheaper rates for electricity used at night, but these are only applicable to a minority of customers.
“Those who use a storage heater overnight might benefit, but rates are more expensive in the daytime. You should also check your supplier’s definition of night-time,” advises Lyon.
Fixed (where the rate won’t change at all) and capped (where you can’t go above a certain amount but can go down) tariffs were a great idea last year when prices were so high; however, getting tied down to one rate might be risky this year. Even if the rates don’t go down much further, Lyon still expects some change over the next six months, and fixed and capped deals tend to be slightly more expensive than standard tariffs.
If you’re currently locked into a fixed deal you can opt out, but you will have to pay an early exit fee. Five of the big six charge between £20 and £30 for leaving a fixed deal, while ScottishPower charges £50.
Green tariffs are not very competitive on price; however, if you are considering going green it is probably for ethical reasons rather than just to save a few pounds. “There’s no way to make sure your electricity is generated by wind turbines just up the road, so green tariffs work by ensuring as much green electricity is generated as the number of green customers,” explains Lyon.
In response to consumers’ concern that they are paying extra for a green tariff, which they then have no way of monitoring, the energy regulator Office of Gas and Electricity Markets (Ofgem) is introducing a green tariff scheme, which will be available later this year.
Suppliers that sign up to the scheme will have to prove their green credentials to the regulator, produce a fuel-mix disclosure chart that shows the breakdown percentage of each energy source used, and demonstrate that they are doing, and investing, above and beyond the bare minimum through extra measures such as carbon offsetting and wind farms.
You don’t have to go onto a green tariff to help the environment, though. As well as switching to a better deal, you can reduce the amount of gas and electricity that you use, which will obviously cut your bill as well. But this doesn’t mean you have to walk around in the dark or never take your coat off in winter – simple steps, such as turning your thermostat down by two degrees, will cut your heating bill by 10%, according to greenenergyuk.com.
And remember, the amount of energy you lose through your loft each year is enough to heat three homes, so get adequate insulation – at least 10.5 inches.
“There is a range of heating and energy efficiency grants available that many people on low incomes are not aware they could be entitled to, as well as free advice, which could help you to make your home more energy-efficient,” says Gallacher.
Turning off your phone charger, not leaving your electrical appliances on standby, using energy-saving light bulbs and putting foil reflectors behind radiators, might sound like minor things, but they all help to make a difference to the environment – and inevitably to your bill.
Finally, if you have a problem with your utility provider, first contact it directly. In line with Ofgem’s complaints process, it must then resolve this complaint within eight weeks. If you’re unhappy with its response or the time limit has passed, you can refer your case to the Energy Ombudsman (0845 055 0760), which can award up to £5,000 compensation to individuals.
Ofgem continuously assesses whether energy providers are charging customers fairly. To reflect this, the regulator recently unveiled a package of new rules for energy suppliers. Ofgem hopes these will give consumers more power and prevent energy companies from charging their customers unfairly.
Suppliers are now obliged to provide customers with a standard annual statement; simplified tariff information with easy at-a-glance price score cards; written quotations for doorstep sales and proof for prepaid meter customers that a doorstep offer is better than their existing deal; and greater financial transparency to help assure customers that the market is competitive and fair.
What is a smart meter?
The government recently announced plans to have smart meters in place in all UK homes by 2020. These will send a message to your supplier every 30 minutes, reporting how much gas or electricity you have used. If you are on an unsuitable tariff, then your supplier will be able to suggest a more appropriate one.
“This will mean the end of estimated bills and allow customers to see how much energy they have used,” says Tom Lyon, energy expert at uSwitch.com. He also points out that with a more precise picture of how much power is used – and needed – smart meters will help the national grid to calculate with greater accuracy how much electricity is needed in peak times.
At this stage, though, the main energy providers are only trialing smart meters, and the logistics and expense of equipping every household with one means it will be a while before they are an everyday reality.
If you’ve have a complaint about a financial service product you have bought but the company you bought it from refuses to resolve your problem after eight weeks, the Ombudsman can help. The Ombudsman will investigate and resolve the matter. The Ombudsman is independent and its service is free to consumers. The Ombudsman may find in the company’s favour but consumers don’t have accept its decision and are always free to go to court instead. But if they do accept an Ombudsman’s decision, it is binding both on them and on the business.
Not to be confused with an early repayment charge (ERC). Exit fees are levied on top of ERCs, which are a method of clawing back lost interest on a loan repaid early. By contrast, exit fees are charged for the administrative work this entails. They are charged as flat fees, from £150 to £300. However, in January 2007, following mortgage lenders surreptitiously raising fees sometimes by fivefold, the Financial Services Authority (FSA) intervened and most mortgage lenders removed exit fees from new mortgages. If you paid exit fees on your mortgage before January 2007, you may be able to claim them back.