Are fixed tarrifs a scam?

Exodi

Ayr_Rage said:

most confusion is due to a lack of understanding on the part of the customer.

This should be the motto for this subforum.

You pay for what you use, the provider doesn't know what you will use so provides an estimate. Either you can tell them how many units you previously used or you let them guess but accept that it might be higher or lower than your actual usage.

When they start to get access to your actual usage data, they will then adjust your DD to reflect your actual usage.

If you are using more than they estimated, naturally your DD would go up.

They didn't mislead you by increasing their DD (I mean one could argue you misled them by not providing past usage figures, or at least that you "knew the payments would be more than I was actually using").

The only think the energy company is at fault for, is having not polished their crystal ball well enough.

How are they to predict that one house only switches on the heating well it drops below 0 and another has the heating set to 'surface of the sun' mode 24/7. It's obviously not logical to suggest these two households should pay the same.

Lolly1626 said:

This isn't the first energy company to do this and I find it so frustrating! Am I missing something? 

Unfortunately it's your lack of knowledge causing the frustration, but to be fair this an extremely widespread misconception - most people's knee-jerk reaction to their DD being raised is that the supplier is profiteering (rather than the suppliers estimates were too low).

Easy way to avoid this is a) keep a record of actual usage (in kWh, not £), b) get a smart meter/update your readings regularly.

Most people that fall into difficulty do so because they falsely assume their estimated bills are based on their actual usage.

Scot_39

Lolly1626 said:

Do energy companies intentionally offer unrealistic fixed tarrifs knowing they will increase your payments over time?

I told my supplier that I live in a 3 bed mid terrace with 1 bathroom. They said based on that information, I would be charged around 85 a month for gas and electric with their fixed rate deals at the moment.

My boiler wasn't working when I originally signed up so I knew the payments would be more than I was actually using as I wasn't using gas for my heating. However, my payments increased to 103 a month despite only using gas to heat my water.

Now my boiler is repaired, I have the heating on for around 4 to 5 hours a day on a timer. My latest bill (and the first full month use of my heating) has now shot up to 200.

Surely my original quote would have taken into consideration that people use their heating? So now I'm thinking this is a luring tactic to get people to sign up.

This isn't the first energy company to do this and I find it so frustrating! Am I missing something? 

There is no fixed energy consumption for a 3 bed home with 1 bathroom.  Its not a good basis for a guesstimated ££££s figure.

It depends on so many things, number and age of occupants, hw consumption, heating temperatures, heating types and age, property efficiency etc etc etc.

The most reliable price comparison technique is to use actual consumption figures for a previous year if have them - for the same basis for a total / monthly price for all comparison quotes - if want to use that sort of £££s per month figure.

And remember even that annual might well vary maybe 10-20% with mild to harsh winter.  My energy use, so bills so far this winter are higher than last.

Using a generic DD figure without knowing the consumption it was based on - a big mistake.

If lucky you could just use the actual fixed elements - standing charges and unit rates - and not just  some guesstimated DD figure. But if mixes of positives and negative relative to current on fixed costs then yes you  then might need to do the sums and factor in an actual estimate of usage.

They would without you providing annual consumption at best most likely use some internal hopefully informed guesstimate as a guide. But  there are or were comparison sites that actually know my last annual usage tariff and supplier, without me informing them - so a wide range of basis for quotes possible - so that basis could vary widely from other suppliers and your individual household consumption so cost.

If one quotes on guesstimated 2000 kWh and 8000 kWh and another 2700kWh and 11500kWh as Ofgem median cap (nominally for a 3 bed) the dd figures will be wildly different - e.g. 50% higher.

I suppose a risk they could low ball the estimate to catch the unwary, but if widespread would perhaps ideally expect Ofgem to have acted.

And £200 for one cold month - in winter -  is not abnormally high - for a 3 bed terrace  - even for cheap gas heating. 

PS as above 
The Ofgem variable cap is c£1800pa,  £150 pm - averaged summer and winter -for you guessed it nominalky 2-3 in a 2-3 bedroom home.  A quote sub £100 seems therefore on low side, and should have prompted some thought / further scrutiny.

victor2

Yet another example of misunderstanding what Fixed Tariff actually means. 

The word Fixed needs to be removed. Not sure what could replace it, because FIxed Rate obviously doesn't do enough. May be something like Static Rate? Or maybe quote as xx p/kWh, with a proviso that xx is fixed for the duration of the tariff and give a new term to such tariffs?

gpman

Lolly1626 said:

Do energy companies intentionally offer unrealistic fixed tarrifs knowing they will increase your payments over time?

I told my supplier that I live in a 3 bed mid terrace with 1 bathroom. They said based on that information, I would be charged around 85 a month for gas and electric with their fixed rate deals at the moment.

My boiler wasn't working when I originally signed up so I knew the payments would be more than I was actually using as I wasn't using gas for my heating. However, my payments increased to 103 a month despite only using gas to heat my water.

Now my boiler is repaired, I have the heating on for around 4 to 5 hours a day on a timer. My latest bill (and the first full month use of my heating) has now shot up to 200.

Surely my original quote would have taken into consideration that people use their heating? So now I'm thinking this is a luring tactic to get people to sign up.

This isn't the first energy company to do this and I find it so frustrating! Am I missing something? 

You appear to conflating a fixed tariff with a payment arrangement.

I fixed tariff fixes the tariff (standing charge and unit rate) for the duration of the contract, except for any government intervention. But you still have to pay for what you use.

Most people agree to pay their credit energy bills, whatever tariff they are on, using a payment arrangement that attempts to set a fixed monthly payment. Many people like this arrangement as most people receive a fixed monthly income. But you still have to pay for what you use.

Suppliers will usually issue a monthly statement of use. In the winter you will probably use more energy than in the summer. If you have agreed a payment arrangement, the usage/cost of any single month would not usually affect your payment arrangement agreement. Effectively, the customer underpays for what they use in winter which is offset by overpaying for what they use in summer.

Payments (credits) are added to the customer's account, and these are used to fund the usage (debits) of the actual cost incurred. Over a year hopefully the credits match the debits, but there is a responsibility on the supplier to monitor that they are doing so.

Most suppliers use a very simple process to initially establish your monthly payment. i.e. they take the assumed annual usage figures you initially provide, calculate the annual cost based upon the tariff you selected, and then divide the result by 12.
This is the approach that all comparison sites usually adopt, and whilst not contractual, should alert you to any difference a supplier may actually request when joining them on a particular tariff.

If that is not the monthly payment you are initially requested to pay, you should ask the supplier how they calculated that the monthly figure proposed.

Some suppliers may adopt a more complicated including seasonal payments (where you actually pay a higher monthly figure for 6 months and a lower monthly figure for 6 months), so more closely pay according to usage, but the supplier should be able to explain the method of such calculation

The situation may be complicated further, as suppliers are now not expected to allow customers to fall into debit on their account, so when in the year you join a supplier can sometimes affect the level of monthly payment requested initially.  Again the supplier should be able to explain their calculation if not the simple 1/12th calculation described above.

What sometimes happens is that suppliers sometimes set the payment level based upon the simple 1/12th calculation, but if you join them in the Autumn/Winter, soon notice that your usage will create an increasing debit situation on your account. So they then increase the monthly payment requested to not only address the higher winter usage, but also recover the debt accumulated. Normally the end of March is usually considered when a customer's account on fixed monthly payment should be zero. (Payments after that are usually more than the cost of usage, until the following Autumn/Winter)

Of course, also ensure that you provide your supplier with regular accurate meter readings (if not on a smart meter) and that the supplier uses those readings.

Also, keep an eye on estimated annual consumption figures the supplier uses. These can and do change regularly, and your supplier should be able to justify any significant change. This is important, as obviously if the EAC changes from the figures you originally provided, then the monthly payment calculated value changes.

Your supplier will typically review your account position every 3 months and advise you if they believe any change to the monthly amount is required (but they may do more frequently if they see a developing serious discrepancy); do not be afraid to challenge any such notification if you do not agree.

The supplier will not be as aware as you of your actual usage profile, and so will adopt a typical user usage profile; yours may be very different. e,g. an unoccupied property may have zero usage for 6-8 months of the year, with all usage only during the coldest months (for heating purposes). Some people may have a relatively high electricity consumption in say July/August if they use a lot of cooling fans or air conditioning to alleviate the effects of the hottest days of the year.

The supplier does not know your own usage profile unless they have several years history with you, and may also confuse a previous occupiers usage profile with your own actual profile. If you can provide any documentary evidence to justify your own annual consumption and usage profile, this can assist your supplier in agreeing a more appropriate monthly payment.

Suppliers themselves will not knowingly set inappropriate monthly payments; too high and they pay put off a prospective new customer, too low and they will upset the customer when they inevitably need to soon increase that monthly payment.
Sales people may, however, adopt such shabby tactics as they are only interested in securing  your new custom (and their commission) after which they are not involved further. As they are unable to change the tariff set by the supplier, they usually do this by artificially lowering the assumed annual consumption.

Again, you need to question any lower payment proposed that is not supported by a comparison site or even better the supplier's own website.

Similarly, if the root cause of changing monthly payments is a discrepancy between the estimated consumption figures you initially provide and what you actually consume, that is something you need to address.

If the cause of the higher monthly payment is due to your own usage profile and/or seasonal usage variation, that should resolve itself if you remain with the same supplier for a longer period, where they should be able to build up a more personalised account history (and avoid the hit of an Autumn/Winter joining as that should only affect the first year with a supplier)

Finally, it really doesn't matter what you pay on a monthly payment arrangement; you will only pay for what you use according to the tariff you agreed. Any over- or under-payment will only result in your account accruing a debit or credit, which ultimately will need to be settled either way.

If you prefer to only pay for what you use, when you use it, then consider a variable monthly payment. Only some suppliers may accept this arrangement, but one supplier who often has one of the cheapest fixed tariff offerings, only uses this payment method.

Exodi

victor2 said:

Yet another example of misunderstanding what Fixed Tariff actually means. 

The word Fixed needs to be removed. Not sure what could replace it, because FIxed Rate obviously doesn't do enough. May be something like Static Rate? Or maybe quote as xx p/kWh, with a proviso that xx is fixed for the duration of the tariff and give a new term to such tariffs?

I understand the dilemma energy companies face.

If it was the case that it was just unit rate to compare, then yes I agree they should just say current unit rate £0.07p/kWh, new rate £0.06p/Wh, 15% saving.

But standing charges also vary. It would be beyond a lot of people to calculate whether a unit rate of £0.07 with a standing charge of £0.50p/day would be better than a unit rate of £0.06 and a standing charge of £0.60p a day.

Then you have the fact that many people are dual fuel, so you would need to consider whether a potential saving on the gas outweighs a potential increase in cost on the electric.

All of this is massively simplified by suppliers by providing a "based on your estimated usage, your bill will be £X per month". As long as you ensure that the estimated usage figures are consistent across platforms, it makes for easy comparison.

The problem is, people take the bill per month quite literally. They may also consider that a fixed rate mortgage charges the same amount every month.

I don't think changing how it is displayed will help, except I guess more warnings about estimated usage, your bill may vary on actual usage, etc.

I don't know whether renaming it "Fixed Unit Rate tariff" or "Static Unit Rate tariff" or whatever would help.

I think a wider problem is many consumers are deeply cynical of companies, particularly utility companies (the water companies don't help this), so the knee-jerk reaction to a bill going up is "they're ripping me off".

gpman

Forgot to add, you should provide your supplier with the estimated annual consumption figures in kWh. Do not use a style of house, as houses vary greatly in size and energy efficiency, as well as your own energy appliance usage/settings.
You can usually find such values on your latest statement, but best to check the accuracy yourself by comparing your own actual usage over the previous year or years (assuming you are in the same property)

Q. How did you manage to heat your hot water using the gas boiler when the gas boiler was apparently faulty at this time?

Lolly1626

Thanks for all your comments. I do understand that house A may have different usage to house B, but they had a year of readings from me previously as I stayed with the same company. Also, I don't understand how having my heating on for 4 hours a day equates to £200 a month!? I live on my own so I feel that is a lot of money. 

Grumpy_chap

Lolly1626 said:

I told my supplier that I live in a 3 bed mid terrace with 1 bathroom. 

Whenever shopping around for energy tariffs in the future, use the actual energy consumption in kWh for the previous 12 months as the price basis rather than size of house.

debitcardmayhem

Lolly1626 said:

Thanks for all your comments. I do understand that house A may have different usage to house B, but they had a year of readings from me previously as I stayed with the same company. Also, I don't understand how having my heating on for 4 hours a day equates to £200 a month!? I live on my own so I feel that is a lot of money. 

Have to checked the number of kWh used by each fuel , you could tell us how much of each, oh and are your bills showing actual readings or estimates.

WiserMiser

victor2 said:

Yet another example of misunderstanding what Fixed Tariff actually means. 

The word Fixed needs to be removed. Not sure what could replace it, because FIxed Rate obviously doesn't do enough.

The word 'Fixed' is fine when it relates to the tariff, because that's precisely what it is.  Perhaps make it 'Fixed Rate Tariff' to make it abundantly clear.

What's wrong is using the same word 'Fixed' for the DD because the amounts claimed can change if there happens to be any variance between the guesstimate and the reality.