'Energy companies price hikes... they’re just doing their job!' blog discussion

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  • backfoot
    backfoot Posts: 2,700 Forumite
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    Super response SnowMan. :) These variable 'contracts' never started off like this.We were encouraged to shop around and switch if the price went to high or Customer Service was poor.

    Suddenly termination fees were brought in! Immediately non competitve.I can't think of any good reason why Ofgem allowed this other than neglect. :(

    I agree it is an Unfair Contract Condition and would like to see it tested. I said on another thread I could see a case for exit penalties on fixed price contracts,where both parties have agreed a hedging price.

    Akin to say a three year savings bond,you are buying into a longer term product, but on a variable instant access saving rate,you have the choice to move around as you wish and in response to changing market rates. That is Competiition.

    The back end discounts are another anti competitive ruse and I think it is Eon who do not even honour any discounts on the final bill if you give notice to leave one of their variable tariffs.

    A strong aware Regulator would have nipped these practices in the bud but......:o useless.

    I hope MSE via Martin will use his publicity base to feed some of our comments into the Public Domain.
  • JimmyTheWig
    JimmyTheWig Posts: 12,199 Forumite
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    Presumably the termination fee is there to cover the company's costs if you switch too soon.
    It would probably be a fairer, more representative, system if you were charged this fee by your new company when you switched in all cases. (And then your bills could be slightly lower to reflect this.)
  • backfoot
    backfoot Posts: 2,700 Forumite
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    Presumably the termination fee is there to cover the company's costs if you switch too soon.
    It would probably be a fairer, more representative, system if you were charged this fee by your new company when you switched in all cases. (And then your bills could be slightly lower to reflect this.)

    No I can't see that for a variable rate tariff. The cost is no where near the type of fees now being asked. Whether you change late or early that cost would be the same.

    It's simply a mechanism for retention and leverage over the customer to allow high price rises.

    You don't have to pay fees to change the place you save with, shop with etc. other than in respect of longer term contracts. You shouldn't have exit penalties levied when on the other hand they can charge you whatever number they think up.:eek:
  • JimmyTheWig
    JimmyTheWig Posts: 12,199 Forumite
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    I'm not supporting them, and certainly not if they try to enforce this fee after an unfair price rise.

    But I agree with you that whether you change late or early the cost would be the same, and that's why I said it would probably be fairer if you were charged this fee at the start of the deal. But I can see why companies wouldn't want to do that.

    So lets say it costs a company £50 to take you on as a customer. Other than that, they make £5 a month profit from you.
    If you cancel your contract within the first 10 months then they've lost money on the deal. I'm not surprised they're not happy with that plan.
  • SnowMan
    SnowMan Posts: 3,358 Forumite
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    edited 3 December 2010 at 5:21PM
    I'm not supporting them, and certainly not if they try to enforce this fee after an unfair price rise.

    But I agree with you that whether you change late or early the cost would be the same, and that's why I said it would probably be fairer if you were charged this fee at the start of the deal. But I can see why companies wouldn't want to do that.

    So lets say it costs a company £50 to take you on as a customer. Other than that, they make £5 a month profit from you.
    If you cancel your contract within the first 10 months then they've lost money on the deal. I'm not surprised they're not happy with that plan.

    It is still unfair and unbalanced if the £50 fee is waived after a price rise but not otherwise. Suppose general energy prices plummet but the Go Direct 5 tarriff remains the same. Then the only way out is to pay £50 and switch to a cheaper tarriff. But if there is a huge general increase in energy prices and the Go Direct 5 also increases, as it will do, then OK you don't pay the £50 but you end up paying higher charges with another supplier instead if you switch. I think you should be able to see the imbalance in the terms and conditions. In the first case you pay "competitive variable prices plus £50", in the second circumstance you pay "competitive variable prices". You should always be paying "competitive variable prices" so the £50 is not reasonable even though no price increase has occurred


    I don't think anyone denies that there are fixed costs (albeit less than £50) when customers switch. The question is, is it reasonable to pass it on to the customer by way of a fixed fee (perhaps at the beginning) equal to those costs. The answer for me is a resounding no.

    Suppose a customer always makes an informed decision to use a supplier at a variable rate. Then it is usually because of arbitrary decisions by energy companies in the market that can't be predicted (for example the existing supplier arbitrarily increases prices or fails to reduce prices when energy prices fall) that the customer would want to switch again.

    It seems pretty logical that it is not reasonable to charge a fixed fee to the customer in those arbitrary circumstances. And to try and decide which switches were due to arbitrary circumstances or not, and to charge only when they were not would be unworkable. The costs of switching have to be included within the general unit rates for all (i.e. no penalty) or some other way or else the system is unfair.
    I came, I saw, I melted
  • backfoot
    backfoot Posts: 2,700 Forumite
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    edited 3 December 2010 at 5:23PM
    No idea where the £50 cost of signing somebody up has come from. This is a fully computerised process now and the contractual documentation is nowhere near that cost.

    The costs of aquisition e.g.advertising,doorstep selling,inducements is a matter for each company to manage.None of that ever existed before. They are additional new costs post privatisation and although they are already passed on to customers in the tariff ,I don't see why they should be a further add on, be they front or back end.
  • these companies aim to make money, it's nothing to do with providing a service.
    I rent privately, my property is electric E7 only, the landlady isn't interested in anything that might make her house better. Warmfront still hasn'tcome through. I switched 2 times now and each time paying off the previous supplier cripples us for months afterward.
    I've checked prices with the various other suppliers and i find it difficult to know if i am actually saving, thanks to the structure that SP uses. With a new baby here, I have never burned so much energy.
    Landlords wash their hands of so much, just like the regulatory systems have their hands tied. It's not as if we can boycott the suppliers - and don't they know it
  • davidgmmafan
    davidgmmafan Posts: 1,459 Forumite
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    I take the point about duplication, and cancellation fees, but if prices here aren't massively higher than elsehwere how does this support the often repeated mantra that we are being ripped off? Isn't it equally possible we had it pretty good before and are just catching up now?
    Mixed Martial Arts is the greatest sport known to mankind and anyone who says it is 'a bar room brawl' has never trained in it and has no idea what they are talking about.
  • JimmyTheWig
    JimmyTheWig Posts: 12,199 Forumite
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    SnowMan wrote: »
    I don't think anyone denies that there are fixed costs (albeit less than £50) when customers switch.
    What sort of cashback is available from a switch, for example? That has got to come from the energy company, and should give an indication of the sort of money it costs them to acquire a new customer. I don't think £50 is unreasonable.

    If someone keeps switching for no good reason without penalty then the prices will go up for the rest of us. Like I say, it would probably be fairer and more transparent to pay this cost at the start then everyone could benefit from slightly lower bills each month. But I can see that that would discourage many from switching, which would often be a bad thing.

    If the energy company plays fair then I don't see any need to switch again quickly and so the fee becomes irrelevant and I don't have a problem with them charging the people who want to switch just for the fun of it.
    If the energy company are unfair, on the other hand, (e.g. putting prices up unnecessarily, not putting prices down when they should, bad customer services, etc) then I agree they don't deserve any fee for losing a customer.
  • magyar
    magyar Posts: 18,909 Forumite
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    edited 3 December 2010 at 6:12PM
    What sort of cashback is available from a switch, for example? That has got to come from the energy company, and should give an indication of the sort of money it costs them to acquire a new customer. I don't think £50 is unreasonable.

    That's about right. Energy companies use two metrics: cost to gain and cost to retain. The first is a positive number, i.e. how much it's worth paying to get a customer, and the other is a negative number, i.e. how much it costs you (in terms of admin) if they leave. The sum of those two figures is indeed aroun £50-60 I believe.

    I'm not convinced I agree with you by the way about switching without penalty pushing bills up. If people could switch easily, then the resultant additional competition should push bills down and at worst should pay for itself, but I am sure it would in fact result in lower bills.
    Says James, in my opinion, there's nothing in this world
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