Two tiers & conversion factor.

Gareth56

Apologies if this has been asked before. Why do UK energy companies charge for their energy at two different rates e.g. For gas the 1st 1465kWh is charged at one rate then all other kWh are charged at a [lower] rate. Also is the UK unique in doing this or do other european countries do similar?

Also I emailed OFGEM with this question but surprise surprise they haven't replied. It concerned the Conversion Figure in the calculation of how many kWh of gas you have used. It's inclusion in the calculation is not supposed to increase the price of your bill but how can that happen when the companies use it to work out the number of kWh you have used? The "rules" say that it 'requires suppliers to reduce energy unit prices by the same amount to ensure bills are not increased.'

So how do you know if your energy supplier has reduced their unit prices?

SwanJon

It's just another way of covering fixed costs - just like a standing charge.
If the first 100 kWh are 20p, and the rest 10p, they will get £10 for their fixed costs, and 10p/kWh for the energy.
So, if you use more than 100kWh, you pay £10 towards the fixed costs, if you use less you pay less. It should benefit low users.
Not sure how other countries do it, but wouldn't be suprised if most just have a standing charge.

The quote you have for the conversion factor is from 1998 (?), so the change would have been taken into account at every price change since. The only time they had to reduce their prices was when the factor was introduced.
Don't know why it's there - probably to make sure the transporters and producers get paid for the right volume of gas before it expands/contracts. All suppliers use the same value so it doesn't make much difference.

Gareth56

Thanks SwanJon. Being the cynic I am don't believe for one minute that the energy companies reduce their prices to take into account the conversion factor, after all who can check up if they have?