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How direct debits are calculated .. read before you shout!
paulonline123
Posts: 36 Forumite
in Energy
I know crossposters should die a horrible death but as this is most of what I do all day i'm guessing it may deserve a wider audience than the thread it was in. Hope this helps.
A direct debit can be one of two things with energy companies, fixed or variable.
Fixed is a set amount based upon your usage. It stays at that amount if you use less or more and will change only on your say or based upon a change of tariff. This is great if your usage stays the same as the previous year it was based upon or prices don't change; however if something does change (and very often it does) this may leave you heavily in credit or more often debit.
If this is the case you may find your direct debit increasing more than it needs to because it was incorrectly set initially. This is a method used by companies such as nPower and E.on and many of the other smaller suppliers.
In 2006 Energy watch stated this type of direct debit is irresponsible as it allows a customer to set an amount that they consider is correct, even if a supplier knows that this is going to leave them in debt.
In response to this many suppliers opted for a variable direct debit method as an alternative, British Gas decided that the only method of direct debit they will use is variable (although if you specifically ask they will give you a fixed DD).
A variable direct debit is based upon your usage and your tariff. I'll give you an example, and the figures here are obviously wrong but are illustrative.
Mr Smith used in 2007 120 pounds. He wanted a direct debit and as at the time prices were not known to be changing a direct debit was set up for 10 pounds a month.
Six months down the line and at this point Mr Smith was projected (based upon previous consumption) to have used 30 pounds, his winter period a lot heavier, and so would be 30 pounds in credit.
In fact at this point Mr Smith had used 36 pounds. His usage at this point was 20% more than previous. At this level of usage it would be expected that he would use 144 pounds in a year. As he is six months into his scheme he would have only paid 60 pounds out of that 144 pounds of expected usage meaning that his direct debit for the remaining six months would need to be (144 - 60)/6 or 14 a month.
My gas bills has gone up 40% cries Mr Smith! But as you can see that's not true.
Now to be specific about your query.
Imagine Mr Smith six months down the line had decided to go for Click 5 and for illustrative purposes lets say its 10% cheaper.
He would still have used 36 pounds in six months. As his tariff had fallen by 10% this would mean that he would have 108 pounds to pay minus the 10%, lets call it 97 pounds, and then deduct his credit from that 67 pounds, and that would be paid over six months or 11 pounds a month.
A 10% increase even though I was told this tariff was cheaper? Ripoff Britain cries Mr Smith.
A direct debit is not a method of paying your bills, its a method of saving money so you can use that to pay your bills.
And that is why despite Click 5 saving you money your direct debit may rise when you go on the tariff. Simply, it was going to rise more than it did anyway and your tariff change forced a reassessment and caught it earlier.
Note that in both of these cases if the DD had been fixed you would be in debit at the end of twelve months.
Without the change to Click 5 at the end of twelve months you would be 24 pounds in debit and your expected usage would be 144 pounds.
That would mean over the next twelve months you would pay 168 pounds, 14 a month or a 40% increase in your direct debit.
Suppliers are not altruistic by any means but they have systems in place to prevent you from going into debt which is no good for you or them. The idea that they deliberately set direct debit policy to rip people off is something I have to battle with for 70% of my day and is plainly false.
YES sometimes direct debits are set wrong but in 100% of the case this is because the information held by the supplier is wrong, an incorrect read, a date for billing, its always the information that's entered that's at fault and not the calculation method itself.
A direct debit can be one of two things with energy companies, fixed or variable.
Fixed is a set amount based upon your usage. It stays at that amount if you use less or more and will change only on your say or based upon a change of tariff. This is great if your usage stays the same as the previous year it was based upon or prices don't change; however if something does change (and very often it does) this may leave you heavily in credit or more often debit.
If this is the case you may find your direct debit increasing more than it needs to because it was incorrectly set initially. This is a method used by companies such as nPower and E.on and many of the other smaller suppliers.
In 2006 Energy watch stated this type of direct debit is irresponsible as it allows a customer to set an amount that they consider is correct, even if a supplier knows that this is going to leave them in debt.
In response to this many suppliers opted for a variable direct debit method as an alternative, British Gas decided that the only method of direct debit they will use is variable (although if you specifically ask they will give you a fixed DD).
A variable direct debit is based upon your usage and your tariff. I'll give you an example, and the figures here are obviously wrong but are illustrative.
Mr Smith used in 2007 120 pounds. He wanted a direct debit and as at the time prices were not known to be changing a direct debit was set up for 10 pounds a month.
Six months down the line and at this point Mr Smith was projected (based upon previous consumption) to have used 30 pounds, his winter period a lot heavier, and so would be 30 pounds in credit.
In fact at this point Mr Smith had used 36 pounds. His usage at this point was 20% more than previous. At this level of usage it would be expected that he would use 144 pounds in a year. As he is six months into his scheme he would have only paid 60 pounds out of that 144 pounds of expected usage meaning that his direct debit for the remaining six months would need to be (144 - 60)/6 or 14 a month.
My gas bills has gone up 40% cries Mr Smith! But as you can see that's not true.
Now to be specific about your query.
Imagine Mr Smith six months down the line had decided to go for Click 5 and for illustrative purposes lets say its 10% cheaper.
He would still have used 36 pounds in six months. As his tariff had fallen by 10% this would mean that he would have 108 pounds to pay minus the 10%, lets call it 97 pounds, and then deduct his credit from that 67 pounds, and that would be paid over six months or 11 pounds a month.
A 10% increase even though I was told this tariff was cheaper? Ripoff Britain cries Mr Smith.
A direct debit is not a method of paying your bills, its a method of saving money so you can use that to pay your bills.
And that is why despite Click 5 saving you money your direct debit may rise when you go on the tariff. Simply, it was going to rise more than it did anyway and your tariff change forced a reassessment and caught it earlier.
Note that in both of these cases if the DD had been fixed you would be in debit at the end of twelve months.
Without the change to Click 5 at the end of twelve months you would be 24 pounds in debit and your expected usage would be 144 pounds.
That would mean over the next twelve months you would pay 168 pounds, 14 a month or a 40% increase in your direct debit.
Suppliers are not altruistic by any means but they have systems in place to prevent you from going into debt which is no good for you or them. The idea that they deliberately set direct debit policy to rip people off is something I have to battle with for 70% of my day and is plainly false.
YES sometimes direct debits are set wrong but in 100% of the case this is because the information held by the supplier is wrong, an incorrect read, a date for billing, its always the information that's entered that's at fault and not the calculation method itself.
0
Comments
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paulonline123 wrote: »YES sometimes direct debits are set wrong but in 100% of the case this is because the information held by the supplier is wrong, an incorrect read, a date for billing, its always the information that's entered that's at fault and not the calculation method itself.
Better still if Government and utility company educated and strongly encourage people to accurately read their meters every 3 months. If people deliberately underread their meter to temporarily save money then they need to be educated that it will catch up with them and by how much. Appointments arranged and kept at convenient hours by meter readers will also help.
Alan0 -
alan99: yeah, that's a good idea, but how likely is it what with how ineffectual our gas & electric regulator actually is?0
This discussion has been closed.
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