Energy costs without hot air (with apologies to David Mackay)

A budget tells us what we can’t afford but it doesn’t keep us from buying it.

William Feather, American author and publisher.

Debt affects us in so many ways.  From the austerity resulting from the unimaginably large debts of nations to challenges faced by every household to make ends meet.  One of the most difficult things to plan for is the cost of heating and lighting our homes.  The most common advice given is to regularly switch suppliers.  However, switching supplier to get the best deal is not easy for some consumers who are often the most vulnerable. The cheapest tariffs are also often not available to people using pre paid meter

So are the fuel supply companies driven to give us the best value by competition?  EDF, EoN, British Gas and Scottish Power have all recently announced reductions in their charges – are they enough?  Gillian Guy and the national Citizens Advice organisation don’t think so.

“The latest price cuts are an empty gesture by most suppliers.  If energy companies really wanted to pass on savings to their customers they should have reduced prices further and immediately not leave households struggling over the coldest weeks. E.ON did cut bills straight away and others firms should do the same.

“The recent cold snap means people are spending much more on heating their homes now than at any other time of the year.  With suppliers expected to make bigger profits this year prices need to come down further and prepay customers should be offered a debt holiday.”


The breakdown of our gas and electricity bills is complex.  The Office of Gas and Electricity Markets (ofgem) is the government body set up to protect the current and future interest of gas and electricity consumers.  One of its roles is to publish information about the current and future costs of the gas and electricity we use in our homes.

At midday on the last Thursday of each month it publishes the Supply Market Indicator.  The SMI as it is known looks at the average annual bills for consumers and estimates the annual cost per customer faced by a typical large supplier to deliver gas and electricity.  The January 2015 SMI estimates that:

–        the estimated average annual fuel bill for a consumer buying gas and electricity from the same supplier over the next 12 months is £1,305. This is £21 lower than  the November 2014 estimate and around £60 lower than the estimate a year ago.

–        total costs faced by a typical large supplier to deliver gas and electricity to domestic customers are estimated to be around £20 lower compared with November 2014.

–        the pre-tax margin a typical large supplier could make over the next 12 months is around £114 or 9%.  This is around £9 higher than November’s estimate and is driven by significant further reductions in expected future wholesale costs.  Given that the supply companies forward purchase the energy we use eighteen months or two years in advance the complexity of the system makes it difficult to assess value for money provided by the energy suppliers.

This is not by way of a defence on behalf of the energy companies, more a plea for an unemotive, reasoned argument to get the best deal for customers The best advice to consumers would still seem to be to switch suppliers on a regular basis. Meanwhile Citizens Advice will continue to campaign on behalf of those who find this difficult – including and those on prepaid tariffs – to get energy supply companies to cut prices across the board to existing customers.

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