'Ditch prepay meters for free and let MSE switch for you: ideas given to Chris Huhne'

This is the discussion to link on the back of Martin's blog. Please read the blog first, as this discussion follows it.

Please click 'post reply' to discuss below.


  • michaels
    michaels Posts: 27,982 Forumite
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    I don't think regulating price differentials is the way to go, less competition is likely to lead to higher average prices for all. Plus how do you compare fixes with different start dates and different durations?

    One thing I think needs to be stamped on is the industry attempt to move to 'early redemption charges' - fees to switch away on variable price tariffs. Already we get locked into tariffs on mobiles and home phones that may not remain competitive for the duration of the deal, this should be blocked for gas and electricity.

    Re meters - I believe for the future 'smart grid', smart meters will need to be rolled out. Wouldn't it make sense for all these to be 'dual tariff' in that they support both prepay keys and direct debit accounts?
    I think....
  • tagq2
    tagq2 Posts: 382 Forumite
    edited 22 November 2011 at 5:43PM
    The only reason there are cheap tariffs is to give you an extra trickle of potential profit from the "savvy" customer base who remember once to optimise their expenditure then forget once prices have increased. It is balanced by the vast majority of people who don't perform this time-wasting hoop-jumping exercise.

    If you automate the switching process - just as if you "simplify" tariffs - you're just going to increase minimum prices everywhere.

    Let's stop ignoring the elephant in the room and acknowledge that to have competing privatised energy bill printing retail services is stupid.
  • ViolaLass
    ViolaLass Posts: 5,764 Forumite
    We moved into a property with a prepay meter a year ago. I rang around and found that British Gas would take it out for no charge provided we passed a credit check. I used this information to persuade NPower, our then provider, to change the meter without charging us. Of course, we then switched to the best deal which was elsewhere - I was surprised NPower didn't tie us into a deal as part of the change. They missed a trick there. In fact, they said we had to stay on the standard tariff for a month before we could switch to a better deal - why this was, they couldn't tell me. I wasn't impressed at being made to pay more, which reinforced my decision to switch.

    So it is possible to get it done without having to pay. This needs to be publicised.
  • wozearly
    wozearly Posts: 202 Forumite
    First Anniversary Combo Breaker
    Some quick thoughts...

    Collective switching

    Great idea in principle, but would probably work best if the group(s) involved are relatively small compared to the overall market. For example, if 5% of all customers were part of collective switching then there's a nice incentive for companies to offer a half-decent bulk deal - and if they missed out on it, it wouldn't threaten their business model.

    If it becomes too large, say 30% of the market moving en-masse on a single day, then getting or not getting the collective switch would be the difference between a company staying in business or not, and losing the collective would result in significant job losses, redundancy payments, unused office space, etc.. The additional risk and instability that would present would add a significant risk premium on to the company's decision to bid for the collective business, which could erode the majority of the discount they'd potentially be able to offer. Or an informal cartel would arise where no companies offered particularly good prices to the collective switchers.

    Again, could be avoided if they were broken down into smaller subsets that sought out deals separately.

    Free credit meters for those on prepay

    Excellent idea

    When you switch they shouldn’t be able to raise prices for 6 months

    Another great idea. Although I would personally prefer OfGem's initial idea that companies should offer a fixed price for 12 months.

    The transfer window would be another good way to do this, provided companies had to announce the new price on a set day (to avoid replicating the current situation where the last to announce looks artificially price competitive in the short-term).

    Lockdown on the differential between tariffs

    I think it would be better to get simplified, readily-comparable tariffs rather than applying a differential. This would reduce the potential impact of confusion marketing (although 15% is still a lot of money given the cost of energy), but it wouldn't do anything to remove it.

    Tips for switching

    I think there are two parts to this. General advice on good practice should, ideally, come from someone other than the energy company. Talking about how to switch, what to watch for, where to get free insulation - these are all things which the company would have a vested interest in you not doing, and so its difficult to believe they would naturally be impartial or trusted by customers.

    However, if energy companies wrote to customers with information about what they could do to stay with the provider and save money, that would be valued - and the company would be in a position to actually attach monetary savings.

    For example, "If you pay us by monthly direct debit, you would save £x per month".

    Proactively listing their other tariffs and what your bill would have been if you'd been on them (using their knowledge of your energy consumption to your benefit) would also be good.

    Both would require regulation - companies don't have a tendency to list options for customers to save money proactively to all customers, even the otherwise happy ones, as its very rarely in their interests to do so.
  • bargepole
    bargepole Posts: 3,231 Forumite
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    All of this just serves to illustrate what a bad idea it was to de-nationalise the utilities, and create the illusion of "more choice for the consumer".

    What's actually happened on gas & electric supply is that we now have an effective monopoly of the Big 6 suppliers (a hexopoly?) who carve up the market between their cosy cartel.

    Because they now have to make huge profits for their, in many cases, foreign owners and shareholders, this takes money out of the business, inevitably leading to higher fuel prices all round.

    Switching between suppliers often ends up costing more in the long run, unless you are logging in virtually every day to keep on top of tariff changes and expiry dates - you'd have to be as obsessive as Martin Lewis to be doing that.

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  • wozearly
    wozearly Posts: 202 Forumite
    First Anniversary Combo Breaker
    bargepole wrote: »
    All of this just serves to illustrate what a bad idea it was to de-nationalise the utilities, and create the illusion of "more choice for the consumer".

    I'm not sure we can be certain of that conclusion.

    We'd need to consider the money that the government has received directly from denationalisation from the energy companies and indirectly via additional investment in power generation, supply, customer service, etc. that would otherwise have been purely funded by the taxpayer.

    For example, we may pay higher energy bills - but less taxes than we otherwise would have done. Theoretically speaking, it could be swings and roundabouts.

    Of course, we'd need to compare the current situation against what a hypothetical state-run monopoly would have done and what the government would have done without the additional money from the private sector. Which makes a mockery of true analysis. ;)

    My guess is that, in line with most de-nationalisations, the up-front gain to the government (and directly/indirectly the taxpayers) and via additional investment was substantial, particularly because it was possible without additional taxation.

    In the long-run, higher prices are likely with a private-operated model, although you would expect it to be more efficient in terms of price and delivery thanks to the profit motive and competition.

    The problem is where de-nationalisation has resulted in effective monopolies or cartels in the private sector, because this can result in the worst of both worlds.

    Train, bus and water companies have local monopolies. Energy companies are accused of cartel-like behaviour. So in these cases, I'd say that the fault isn't necessarily de-nationalisation itself (although it could be), but the way in which it was actually implemented which has led to customer detriment.
  • amiehall
    amiehall Posts: 1,363 Forumite
    Prepayment meters are a nightmare! I remember having to give a £250 deposit to have ours removed. As a student that kind of money was hard to find! Exploitation to trap people without the means to save up a huge lump sum on an irritating and expensive tariff.
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  • ic
    ic Posts: 3,291 Forumite
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    Please correct this bit in the article:
    (ie, if bills are up 20% and you save 20% it puts you back where you started).

    If prices go up by 20%, then you need a 16.6% saving to get back to where you started.
  • magyar
    magyar Posts: 18,909 Forumite
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    wozearly wrote: »
    We'd need to consider the money that the government has received directly from denationalisation from the energy companies and indirectly via additional investment in power generation, supply, customer service, etc. that would otherwise have been purely funded by the taxpayer.

    There's relatively little difference either way. Compare the two cases.

    1) Government wants to invest £2bn into a new power plant, it issues £2bn of government bonds at typical gilt rates. UK plc pays back via taxes.

    2) Utility wants to invest £2bn into a new power plant, it probably uses about 20-30% equity and borrows about £1.5bn. Consumers pay back money via bills.

    Government borrowing is cheaper than corporate borrowing, but it would probably borrow more. Plus option (2) is not on the UK balance sheet.
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  • DVardysShadow
    DVardysShadow Posts: 18,949 Forumite
    From TFA
    One of the energy summit actions was that energy companies would write to customers suggesting they switch to direct debit.

    To my mind DD is part of the problem. Too many people are negotiating the lowest monthly DD to push their debts further to the future. I believe that many accept a higher tariff in the search for the lowest monthly DD.

    No company is completely honest or transparent about DD's either.

    What is required is for the regulator to define how DD's should be calculated and impose this on the industry. I know that this apparently goes against the requirement to foster competition. But competition is meant to stimulate efficiency and lower prices. Competition on monthly DD's is actually harming true competition, because consumers are too motivated by the false competition in monthly DD's
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