What next for energy prices?

Clare Francis is with gas & electricity expert Scott Byrom to discuss why we have waited so long for our energy bills to come down...

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After last years huge hikes in energy prices there’s at last some good news for consumers with the announcement that bills are set to fall. But providers are coming under increasing criticism for having waited so long to pass on price cuts, and also for not passing on a big enough reduction.

Well Scott Byrom, who’s the utilities expert here at moneysupermarket.com, is with me to discuss why we’ve had to wait so long for our bills to come down, whether we might in fact be in line for further cuts to come in the coming months, and also what we should do now with regards to our energy tariffs.

Q1: So Scott can you just explain why we have had to wait so long for our energy bills to come down, because obviously wholesale prices have been falling for months now?

Scott Byrom: I think ultimately the one thing that is well documented is that energy suppliers buy their energy so far in advance, so what we would have seen is British Gas would have bought the energy we’re currently using in maybe last summer, July-time, when prices were a bit higher. They’ve now got to the point where they can say, “we expect that energy to run out in February-time, and therefore we’ll pass the price reductions onto the customer around and about that period.”

Q2: There’s also criticism that we’re not seeing enough - they’re not playing fair with us, the consumer, and we’re not benefitting fully from the price falls, because wholesale prices have fallen by about 40% since their peak. Why aren’t we seeing our bills fall by that amount?

SB: It might be something that the energy suppliers are just testing out. We might see an introductory decrease of 10%, that could then be followed up by further reductions. I think the energy suppliers have clearly stated that the price they’re paying for the energy right now is obviously cheaper and they expect to pass that on to the customer later this year, so I fully expect to see further decreases.

Q3: Because they are under increasing pressure aren’t they from the regulator, from Government, from consumer bodies, and I think attentions really focusing on how our gas and electricity prices is derived at, and how opaque or transparent is the market. Do you think is it going to get harder for companies to mask the prices?

SB: Yes, well they’re under a lot more scrutiny at the moment, obviously Ofgem, the energy regulator are applying a lot of pressure to them, consumer groups as you’ve mentioned, so hopefully it is something they’re going to consider. I think with the pressure it will help the consumers ultimately, and like I said all these price decreases, as a consumer we just want to see them as quickly as possible.

Q4: Because people feel as though they aren’t getting a fair deal, whether or not providers are ripping us off, that’s what the perception is, and they’ve got a long way to go haven’t they before they’ve got the trust that we feel as though we’re being treated fairly?

SB: Yes, I think they have and obviously consumers, we’re all happy to pass comment on the price reductions we’re seeing, but ultimately I think we need to take control of it as individuals really. There are better deals out there available to consumers – it’s just about getting out there, not sitting still and having a moan if you like and saying ‘I want better decreases’. Go out there, see what the best deals are and you can make significant savings. For those who have never changed before, savings of £300, £400 are certainly out there to be taken advantage of…

Q5: And I guess if people vote with their feet and start moving around and show that they’re not prepared to just be treated [badly]?

SB: …that’s it, if we all sit still then it’s making it easier for the energy suppliers and playing into their hands. If we move around and we say ‘look, we’re not going to tolerate this any longer, we’re going to look for the best deal’ then it makes the energy suppliers think ‘right, we need to compete for these customers and therefore we need to do something about our prices’.

Q6: But is now the right time to move, because aren’t we better…our advice, what is it, because it’s not to move just yet is it?

SB: The way it is at the moment, obviously there’s a lot going on and we’re expecting price decreases to be announced over the next few weeks but for the time-being certainly wait and see what the rest of the market do, because you could apply for a product today from E.On for example, and in two or three weeks time it might not be the best deal, so certainly for the time-being, the advice to the consumer is sit tight, lets see what unfolds, and get to apply once everyone’s shown their hand.

Q7: Yes, once we’ve got a level playing field. What else can you do? Because I know one of the things the providers are trying to encourage is for us to become much more efficient in the way that we use energy ourselves, so obviously if in the next few weeks we get ready to move once we’ve seen what everybody’s going to do with their prices. So that involves getting meter readings, making sure you know who your providers are and so you’re ready to go as soon as we know. What else can we do?

SB: I mean that’s it, it’s really just looking about, getting the best deal or making the best savings, but also looking at reducing your energy consumption. There’s lots of information on our website and other websites out there to look at ways you can reduce your energy bills, there’s full lists out there that consumers can look at.

CF: And it’s simple things isn’t it, from taking a shower rather than a bath…

SB: Yes it’s about 30% less water, that type of thing. Make sure you’re not heating the whole house, just heat the rooms that you’re living in…

Q8: But right through to much bigger things like cavity wall insulation, loft insulation, things like that?

SB: Well loft insulation is a fairly cheap thing to do, and the benefits are significantly over £100 a year, there’s lots of information out there. There’s so much stuff we can do to reduce our energy which will obviously have a big impact on the amount we spend per year.

Q9: Do you think people are really suffering, because obviously last year’s price hikes were so big, and for a lot of people they’re only just getting the bills if they pay every three months? And with it having been the coldest part of the year, it’s been Christmas where a lot of people have been home rather than out at work - there’ll be a lot of people very shocked won’t there about how much they’ve got to pay?

SB: I think this is the issue. Obviously when these price reductions are coming into play, - like British Gas in the middle of February - a lot of people it will be too late. We’ve gone through the colder winter months and obviously those quarterly bills will be landing through your letter boxes fairly soon, and I expect that to be around 40%-50% of your annual bill, so it could be as high as £500 for the average customer.

Q10: What do people do if they can’t afford to pay? Do you know what I mean, if you can’t afford, what’s the advice if you can’t afford to pay it?

SB: If you can’t afford to pay it, speak to your energy provider and see if they can spread the costs. Obviously one of the biggest issues is the concern if people start paying it off on their credit card, obviously it’s not the cheapest way to do it, and this then ties into the benefits of applying for a product and paying by monthly direct debit – obviously it splits the costs across the year, you’re not paying any interest as you would be if you were paying it off your credit card, and it spreads it all out. So in the summer you’re paying more than you’re using to build up credit, and then in the winter you’re not paying as much, but then it balances itself out, so monthly direct debits is something consumers should be looking for.

Q11:  Are providers quite understanding if people do contact them and say ‘look, I’m going to struggle, I can’t afford to pay this all at once?’

SB: Well, given the current climate I think it’s something all energy suppliers have to do to be honest, there’s going to be a lot of people out there – we think there’s around about 5 million vulnerable customers – so energy suppliers need to look at it realistically and think that the bills that we’re passing on to the customer, we need to be able to give them as much support and help as possible. There might also be grants available from your local council to help the most vulnerable customers.

Q12: So don’t just ignore the bill – contact your supplier and see if you can come to some arrangement?

SB: Yes, definitely, when that bill comes through the post, do not panic. Try to speak to as many people as possible, get as much advice as possible and see what you can do.

CF: Thank you Scott, thanks.

SB: Thanks very much.

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