Loyal customers lose out
One of Ofgem’s key findings is that customers who are loyal to their energy supplier often lose out.
Those who get their electricity from a company which was formerly the key supplier in their local area are likely to pay around 10% more than new customers who live elsewhere.
Effectively, companies earn extra profit from consumers who have remained loyal to an incumbent electricity supplier -- while offering newbies far more competitive deals.
What’s more, energy companies also modify the tariffs they offer on a regular basis. This means existing customers are likely to get a worse deal than those who’ve just switched to an energy supplier, as each new ‘version’ of an energy tariff tends to be more competitive than the last.
How you pay affects how much you pay
This might not surprise many Fools -- but Ofgem has confirmed that the way you pay for your energy affects how much you’re charged.
Using a pre-payment meter (PPM) is generally the most expensive option. Ofgem data reveals that, at the start of 2008, ‘medium’ gas and electricity users with PPMs paid an average of £125 more per year for their fuel than those who paid by direct debit.
Similarly, ‘medium use’ customers who pay their energy bills quarterly in arrears (by ‘standard credit’) spend £80 more per year than those who pay by direct debit.
Crucially, Ofgem has concluded these price differences are not always justified. That’s because the cost to companies of accepting PPM or standard credit payments is sometimes lower than the premium they charge customers for using these methods of payment.
Once again, suppliers aren’t playing fair with these individuals -- and worryingly, it’s the people who are least able to cope with additional costs that tend to use standard credit and PPMs to pay for their energy.
Doorstep deals are dodgy
According to Ofgem, consumers who change their energy supplier after a doorstep discussion don’t always benefit from the savings they are sold.
In fact, as many as 48% of gas customers and 42% of electricity customers won’t achieve any reduction in the price they pay after signing up with a new supplier in this way -- so it’s certainly not a method of switching I’d recommend.
Avoiding these energy rip-offs
If you want to cut your energy costs this winter, it’s vital to avoid all the pitfalls I outline above.
Here are my top tips for bagging a better deal on your energy:
* Don’t stick with your existing supplier. Ofgem’s report suggests that around 46% of consumers have never switched suppliers or have done so only once -- but as loyalty doesn’t pay in this situation, they’re probably paying over the odds for their energy.
* Consider an online tariff. According to Ofgem’s report, customers who opt to manage their gas and electricity bills online save an average of £50 a year. Just remember, when using an online tool, to always enter your annual energy usage in kilowatt hours (kWh) to get the most accurate price comparison possible. If you can’t find this information, it’s a good idea to phone your existing supplier and ask for it
* If it’s possible for you, think about paying for your gas and electricity by direct debit. This could cut the annual cost of your energy by £80 -- or even more if you’re a ‘high user’.
* Always ensure that your energy bills show actual, rather than estimated, meter readings. Remember, you can read your meters yourself and submit the details to your supplier to ensure you’re being charged correctly.
I believe energy suppliers have been getting away with too much, for too long -- and I’m thrilled that Ofgem has stepped in to issue a few stark warnings. But until we see regulation tightened, customers who refuse to accept poor service, inflated prices and unfair charges hold the key to making these companies behave better.
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