Rising Energy Bills-The tipping switching point
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Tipping point before switch
• Rising energy bills can be a frustrating problem for many households. However, it is important to understand the tipping point before making a decision to switch energy providers. For many households, the tipping point is when the cost of energy provided by one company is significantly higher than the energy provided by another. This is because energy providers offer different rates for different types of energy and it is important to compare the rates in order to make an informed decision. Additionally, it is important to consider any fees associated with switching energy providers as well as any discounts or incentives that may be available. Finally, it is important to research the customer service and satisfaction ratings of any company that provides energy in order to ensure that the switch will be beneficial. Taking these factors into consideration can help you make an informed decision about when it is time to switch energy providers.
• In these trying circumstances, consider this: how hot does the energy bill have to get before the boiling customer takes action? Are we all frogs destined to boiling to death unwittingly, only to wind up as an appetizer d'oeuvres to the main course of fuel poverty with a side dish of blackout on some Frenchman's plate?
• When viewed in the light of the long-term trend, the recent round of price increases from NPower, British Gas, and SSE are not surprising (see Figure 1). Indeed, if you were to place a tiny wager on whether price increases this year would (a) occur and (b) fall between 8% and 12%, you would have received fairly shaky odds from your local bookmaker.
We're operating a virtual hedge book at UtilityKing to try to recreate the costs a domestic supplier confronts in wholesale energy markets for their regular variable product. Figure 2 shows it indexed to January 2010. Given that it is simply a rudimentary (and hence broad) representation of a supplier's core pricing and trade situation, this would imply that wholesale power prices as faced by supply firms have risen by around 3% in 2010 terms since the previous price increase in Autumn 2012.
While the Genius Index clearly indicates a price increase, it cannot explain for the 8%-10% levels witnessed thus far in 2013, especially given the wholesale energy price only accounts for roughly 50% of the average home user's energy bill. If I had the time and the enthusiasm, I would take a quick trundle through the various Distribution Network Operator's Charging statements for 2012-2013; cross reference that against National Grid's latest published rates and work out whether infrastructure could in fact be responsible for as much of the uplift (2%) as is being suggested.
What is highly controversial is whether the wholesale market is responsible for the 3% claimed by BG overall (gas and power), given both the Genius Index and Figure 3, which show the year ahead price for gas has risen a whopping 0.6% since this time last year - hardly the 8% claimed in the press releases I've seen.
Of course, your price is only as good as your trading division, so it is possible that BG piled in at the peak of the market back in Spring - but it is a bit of a stretch, and I doubt the traders would be too eager to stick their hand up and confess they were catastrophically wrong! Of course, this isn't just about the BG price increase; SSE has already gone, as have a number of the smaller companies, including the Cooperative, and the remaining four big guys will no likely have their own magic number ready to unleash on us after SSE and BG have absorbed the brunt of the negative press.
Regardless of the reasons for rising energy costs, it is true that a typical customer may save up to £200 by moving energy from one of the Big Six basic rates to another tariff or to both another supplier and another tariff. I just switched to two of the tiny providers (their prices combined being better than almost any other dual fuel deal on offer with the added benefit of being on a green certified electricity tariff). In this scenario, the two energy providers were LoCo2 for electricity and Better Energy for gas, but in reality, all of the tiny suppliers had several benefits over the larger players:
They avoid the costs of ECO (Energy Companies Requirements), Warm Front, and many of the government's social welfare obligations, allowing them to offer lower pricing.
They don't have a Chairman and CEO earning seven figures with boardrooms and corporate vehicles to match.
Because they are not publicly traded, shareholder return may not necessarily represent the beginning, middle, and finish of the computation.
They do not have large sums of money poured into final salary pension systems.
They are tiny and efficient which means they are all in the same office and can communicate to each other to fix or eliminate mistakes and enhance customer communications. (I was contacted within days by both my new providers to confirm that my transition was in progress).
Bureaucracy costs money and has an influence on service, and small suppliers, with one or two exceptions, truly make that pay in terms of lower prices and better customer service.
Small energy suppliers offer specialty offerings that larger companies do not, such as 100% renewable energy or smart meters.
So, with all of these advantages of moving to a smaller energy supplier, not to mention huge financial savings, what are we all doing? Whatever it is, it isn't switching because the energy switching market reached an all-time low in 2012-13, with just roughly 15% of homes transferring. Nonetheless, I'm sure a straw poll of 100 UK homes would identify rising energy expenses as one of the top concerns for them, their friends, and their families.
UK customers will continue to feel the pain as long as they stay indifferent in the face of these quarterly attacks on their family finances; are afraid or hesitant to switch energy suppliers; pay by direct debit; or get their energy bills online. We can't truly complain about completely controllable expense hikes if we all neglect to look at our own behaviors at home at the same time. Is it really necessary to heat every room in the home to 21 degrees Celsius when we may be quite comfortable with a sweater and only the living room heated - and only to 19 degrees Celsius?
Similarly, the government and policymakers must spend less time talking about price freezes and other political tricks; being astonished by growing energy costs (really, DC, was it such a surprise? ); and more time putting a national plan of housing stock energy efficiency upgrading into action (paid for out of general taxation if necessary).
To return to my initial point, given that energy costs have more than quadrupled since 2005 and switching rates have dropped to 15%, how much further would energy prices have to increase before the remaining 85% feel the water is too hot and leap out? Based on our past behavior, we may still see little to no switching activity in 2017, at which point the average household bill will have climbed again, from £1,279 in 2013 (pre-price increase) to £1,910. Isn't it a little unsettling to think of a frog allowing itself to be boiled?
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The boiling frog syndrome, proposed by German scientists in the nineteenth century, uses the phenomena of boiling a frog so slowly that it doesn't realize it is dying as an analogy for human behavior that fails to recognize when something awful is occurring because it happens so gradually. The wording of this sentence:
