Thursday, November 02, 2006

Why Switch Energy Suppliers?

Hello My Friends,

There is nothing like being hit hard in the wallet to focus the mind.

The past 18 months has seen several energy price rises, prompted by supply factors - all of them bad from a consumers' point of view. The upshot has been consumers are shopping around for their electric and gas as never before. However there are also contrasting reports that up to 40% of consumers dont even look at switching suppliers as they view the transaction as such a hassle.

But thankfully the tide of opinion is turning and the number of consumers switching supplier is increasing rapidly. Not so surprising when you consider this week's news about British Gas and their unenviable record number of customer complaints that totals more than all the other five major energy suppliers complaints combined ! Some things unfortunately never change. Watchdog reported this week that British Gas have been in this position consistently over the last 15-20 years - despite increased competition from deregulation it would appear that BG havent changed their habits.

According to the industry regulator Ofgem, roughly half of the UK's 20 million gas customers have now switched from their original supplier since they were first allowed to do so in 1998. A similar story of supplier-hopping has occurred when it comes to electricity. I have changed three times in the past six years and may do so again shortly.

"The UK market is the most open to competition in Europe," says Chris Locke, Ofgem spokesman.

"On average UK consumers can save on average £100 the first time they switch supplier.

"Subsequent switching produces a lower level of savings but money can still be cut from bills."

The recent price rises have given an extra impetus to switching. In April 2006, when a host of price increases started to bite, a record 900,000 customers changed supplier.

Customers are switching themselves using online utility price comparison sites such as uSwitch or Simply Switch.

In theory, it is relatively easy to switch energy supplier. Certainly it is a less arduous process in principle than moving a current account or mortgage provider.

"You simply pick up the phone to the supplier you want to move to, let them know your personal details, bank account number and your meter reference number," says Geoffrey Slaughter, head of product development at uSwitch.

"It is also a good idea to let your new supplier know your usage; just in case you want to pay by direct debit, you do not want to pay more each month than you actually use," he adds.

After this initial call the new supplier contacts the customer's existing supplier and the transfer of account is under way.

The transfer takes a month and all the customer has to do is give their old supplier a meter reading so that a final bill can be generated.

Fixed-price "deals"

The UK's six main energy suppliers are scrapping for your business.

Against a backdrop of rising prices, providers have been working overtime to give themselves what in marketing speak is called a "unique selling point" - in other words, something to stand out from the crowd of companies.

"Protected" price deals have been key to this. There are three types of protected price deals.

"Firstly there is the standard fixed-price deal. As the name suggests this fixes prices for a set period, say (until) 2010. The downside is if prices fall, the customer's bills do not," says Mr Slaughter.

"The second type of deal is capped. Under this type of arrangement, the supplier pledges not to raise prices above a certain level, but if prices fall the customer will see their bills drop.

"The third from British Gas is called fix and fall. Prices are fixed for a specific period of time."

After this specified period of time, end of 2007, prices are guaranteed to fall.

But there is a note of caution to be struck with protected price deals.

Wholesale gas prices have been falling for months, as fresh supply comes online, and this is set to feed through to customer bills in 2007.

Therefore some of those who opted for a standard fixed-price deal may in the not-to-distant future find that they are paying too much. However no providers currently impose a penalty for moving away from a protected price deal. In other words dont be fooled into thinking that longer term fixed price deals are the best solution to save you money on your bills. Many of the energy suppliers are promoting fixed price contracts but imagine if the price of gas falls how many people could actually thereafter be worse off?

Pre-payment Penalty

Not everyone is taking part in the switching jamboree.


Customers who use pre-payment meters - about 12% of gas and 14% of electricity users - are much less likely to have switched than customers who pay by direct debit or monthly bills.

The most recent Ofgem study reveals that just over a third of pre-payment gas users and four out of 10 electricity customers have switched supplier.

This compares with more than half of direct debit and monthly bill payers who have switched.

But according to consumer groups pre-payment customers are the most in need of finding a cheaper energy deal.

On average, pre-payment customers pay £45 more a year than quarterly bill payers or close to £100 more than those paying by direct debit.

"These people are often on low fixed incomes, they could really benefit from moving to a less expensive supplier," says Graham Kerr, spokesman at consumer watchdog Energywatch.

But he added: "Any special deals such as fix pricing are aimed at direct debit and quarterly bill-paying customers.

"The market doesn't work for pre-payment customers. It's almost as if the companies do not want them... after all, it is more expensive to have the meters in place, managing the card or token system."

But energy providers deny that pre-payment customers are being left behind.

"Energy suppliers are heavily investing in new pay-as-you-go (pre-payment) metering technology and they compete for these customers aggressively." said a spokeswoman for the Energy Retail Association.

However, online energy switching services like uSwitch only offer to switch customers paying by direct debit or quarterly bill. Its as though the energy suppliers see the pre-payment meters as the last bastion of really profitable income despite the fact that its general those customers who are most at risk from fuel poverty.

Energywatch accuses the industry of missing a trick.

"In any other walk of life if you pay in advance you get a discount but not for pre-payment energy customers. They have to pay more, it is crazy," said Mr Kerr.

HOW TO SWITCH SUPPLIER

Contact your prospective new supplier and tell them you want to move
Give your new supplier an idea of how much energy you use each month or quarter
Under an industry protocol it should generally take about a month for your account to be switched
On the day of the switch call the supplier you are moving from and give them a meter reading so that they can produce a final bill
Electricity meter

From Your Friend The Energy Ange
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