Frightening Price Inflation Implied by ScotPower 3yr Fix

Sledgehead

The spreadsheet values turned up for Scottish Power's fixes make alarming reading. Comparing their 1 and 3 year fixes* produced the following first year costs:

first year of 1 year May 2016 fix : £1409
first year of 3 year Aug 2018 fix : £1828

For three years, it's obvious what the 3 year fix will cost: £1828 + £1828 + £1828 = £5484

But what about the 1 year? The 3 year total cost will depend on how prices move after the 1 year fix has ended (as we'll have to buy a new 1 year fix at that point).

If I inflate prices from the original 1 year price (£1409) by a fixed rate R%, I can arrive at a total cost of around the same figure:

£1409 + (£1409 * (1 + R)) + (£1409 * (1+ R) (1 + R))
= £1409 + £1796 + £2290 = ~£5484

But what R do I have to use to make this work?

27.5%

Yep, twenty-seven and one half percentage points of inflation between EACH yearly fix.

Throw in the very real threat of Red Ed price fixes and either I've made some silly mistake or only idiots are accepting this offer!

.... Or do Scottish Power know something I don't - yikes!

___________________________________________________________

*Just so as you know, I'm working off :

Elec Usage : 4722 kWh/yr
Gas Usage : 19704 kWh/yr

ScotPwr Tarriffs:
1yr May 16 Fix Elec Standing Charge / day = 20.55p
1yr May 16 Fix Gas Standing Charge / day = 20.55p
1yr May 16 Fix Elec Unit Charge / kWh = 10.862p
1yr May 16 Fix Elec Unit Charge / kWh = 3.146p

3yr Aug 18 Fix Elec Standing Charge / day = 29.04p
3yr Aug 18 Fix Gas Standing Charge / day = 29.04p
3yr Aug 18 Fix Elec Unit Charge / kWh = 13.822p
3yr Aug 18 Fix Elec Unit Charge / kWh = 4.068p

JJ_Egan

Until the next government make up is known its best to play safe and load your product prices .

Cardew

When first introduced long term fixed/capped tariffs tended to be excellent value. The classic was BG's 3.5 year fix to April 2010 which had virtually no premium.


However because of the popularity of these long term fixes, many companies jumped on the bandwagon and started offering such tariffs with a huge premium over their cheaper tariff - yours being an excellent example.


Obviously I agree any reasoned advice would be never to take the SP Aug 2018 tariff. However I would stop short of calling people 'idiots' as many just cannot understand gas/electric tariffs and no increases for 3 years has an appeal..

macman

One of the most common questions on here is 'should I fix?' To which the answer has to be: 'possibly, but it all depends at what price you fix'.

Sledgehead

Cardew wrote: »

... I would stop short of calling people 'idiots' [STRIKE] as [/STRIKE]_ even if many just cannot understand gas/electric tariffs as I'm too nice by half / am running for parliament.

fixed
__________

Sledgehead

macman wrote: »

One of the most common questions on here is 'should I fix?' To which the answer has to be: 'possibly, but it all depends at what price you fix'.

or better still do as I have done and calculate the implied price inflation in the fix. Then ask yourself whether the encumbent government would wear it given the current rate of CPI.

Personally I think the utilities would struggle to make a further double digit increase esp under a socialist government. Stranger things have happened but it's a case of playing the probabilities.

It's true governments can be entirely irrational in what they will and won't do. For instance, save the winter fuel allowance for pensioners, no government in recent years has suggested THEY should help the population out with their energy bills (ie through buying up all the gas and selling it at a fixed price as a communist / socialist regime would - eg Hugo Chavez and subsidised petrol). My suspicion is that the electorate would not like this - far too "commie" - after all, the citizen will pay thru taxes anyhow. And yet the electorate seem to quite like the idea of subsidising house purchases via tory right to buy and lab stamp duty give away. And yet arguably people who can afford to buy a house ain't in that much need ....

polymaff

It is marketing thing. Some customers are willing to search for good deals, some trade price against the need to do so. Scottish Power's latest 3 year fix is somewhat expensive - but it could be said that their recent 1 year fixes have been slightly underpriced.

It is just a marketing thing - and, by the way, a well-used marketing nostrum is "The customer is not an idiot - she's your mother".

Bluebirdman_of_Alcathays

Sledgehead wrote: »

or better still do as I have done and calculate the implied price inflation in the fix. Then ask yourself whether the encumbent government would wear it given the current rate of CPI.

Personally I think the utilities would struggle to make a further double digit increase esp under a socialist government. Stranger things have happened but it's a case of playing the probabilities.

It's true governments can be entirely irrational in what they will and won't do. For instance, save the winter fuel allowance for pensioners, no government in recent years has suggested THEY should help the population out with their energy bills (ie through buying up all the gas and selling it at a fixed price as a communist / socialist regime would - eg Hugo Chavez and subsidised petrol). My suspicion is that the electorate would not like this - far too "commie" - after all, the citizen will pay thru taxes anyhow. And yet the electorate seem to quite like the idea of subsidising house purchases via tory right to buy and lab stamp duty give away. And yet arguably people who can afford to buy a house ain't in that much need ....

And this is where your argument starts to fail. This product from SP is just that - a product. It isn't at the behest of CPI, and nor does it go far to influence it.

The vast majority of people are on standard tariff. At a loose guess 0.01% of the population will end up on this tariff, nice work if you can get it, but not life changing.

The rest of us are on tariffs that have by and large been falling in real terms - below CPI.

System

The problem is that when Politicians attempt to 'manage' prices, customers tend to get bitten in the backside. This is what is likely to happen to rail fares in my area:

http://www.dailymail.co.uk/news/article-3056173/Rail-firms-fire-planning-fare-hikes-87-come-just-ten-days-election-despite-main-parties-vowing-price-freeze.html

No one is forcing anybody to take a 3 year fix. It's an offer which we are all free to reject.

Pincher

Sledgehead wrote: »

.... Or do Scottish Power know something I don't - yikes!

Scottish Power knows there is one born every minute,
who will be too scared of paying too much, and buy insurance by PAYING TOO MUCH.


They all have a cheap deal to get into the comparison tables, which is usually the one year fix. Unless they come up with a anti-Pincher policy, so I can't switch to the latest cheap fix, I doubt the three year fix will be worthwhile.




Having said that, a £999 three year fix for 13.500/3,200 consumption will get serious attention from me.






Check this out, E.On:


If you do one where the customer pays three years upfront, say £4,500+, there are quite a few benefits.


1. Massive capital reserve.
2. No need to chase payment.
3. Almost no admin for three years.
4. No customer retention, no acquisition cost.


Isn't that worth a 20% discount?

Cardew

Pincher wrote: »

Check this out, E.On:

If you do one where the customer pays three years upfront, say £4,500+, there are quite a few benefits.


1. Massive capital reserve.
2. No need to chase payment.
3. Almost no admin for three years.
4. No customer retention, no acquisition cost.


Isn't that worth a 20% discount?

There might be need to chase payment when(if) the customer uses more energy than the £4,500 'allowance'.


Unless you installed pre-pay meters loaded with £4,500 credit;)