20 November 2012

“Cheapest Energy Tariff” plan launch today

Ed Davey, the Energy minister will have to pull a spectacular rabbit out of the hat to live up to the hype of £300 savings for all.

Launching with the unrealistic fanfare of "families could save £300 per year”, Ed Davey, the Energy Minister sets out plans in today's Energy Bill to deliver David Cameron's pledge to introduce legislation.

The £300 saving may be possible if you go from an uncompetitive standard tariff product and change payment method from quarterly payments by cheque to direct debit. Less easy if you go from an existing discounted rate on monthly direct debit. To say all households could save that amount is wholly unrealistic.

The big energy companies are reporting overall profits of around 5%. Or around £75 on a £1500 energy bill. That includes all those people apparently paying £300 a year too much because there are too many tariffs and it's all too confusing. So we can get a level playing field and everyone can save £300 can we?

It is very hard work to manually compare hundreds of tariffs to find the best one for you. Which is why you let a website do the hard work, rank the results by cost and don't bother to look at the tariffs that plainly don't work for you!

To say that each energy company will only be allowed to offer 4 tariffs will simplify things is in itself an oversimplification. Each of the big 6 suppliers has 4 tariffs, oh and 3 payment methods – so that's 72 tariffs. Don't forget economy 7 tariffs on top, especially if you want to recharge your electric car they're so keen we should use. And don't forget you can often get a better deal from one of the smaller energy companies like Ovo, First:Utility, Co-operative, Spark and ecotricity to name but a few. There's also the likes of M&S and Sainsbury's offering re-badged big six energy. That's still going to be an awful lot of tariffs to check.

Forcing energy companies to put people onto their best tariff sounds like a good idea. It offers a degree of protection for those more vulnerable customers. But it will either mean the end of good deals or an increase in the complexity of the deals. How long will it take the energy companies to come up with reasons they couldn't put you on a deal because that would force you into terms you hadn't agreed to etc.?

If the plans are effective in forcing energy companies to offer the best rate and keep you on the best rate, they will also be effective at reducing competition. They will also be a disincentive to move, which is a shame given so few households actually take the opportunity to shop around as it is.

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