As energy costs send out sparks, you can hit the 'off' switch

With gas and electricity prices soaring, Julian Knight looks at the case for choosing a fixed tariff
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As the summer gets into full swing, the cost of gas and elec- tricity might be one of the last things on your mind. But as you fire up the barbecue or surf the net for that summer break, the energy firms are playing their own version of chicken over when to raise their tariffs.

"The six big energy companies are watching each other, wondering which one will move first," says Mark Todd, co-founder of price-comparison service "The price of gas now for supply next winter is up 50 per cent on the level of the winter just gone – something has got to give."

The alert has also been sounded by industry regulator Ofgem. "Recent rises in gas prices are largely to do with increases in the cost of oil and coal, which are driving up the price of wholesale gas in Europe. As our reserves decline, we have to import more of this expensive European gas," says Mark Wiltshire, spokesman for Ofgem.

A recent gloomy trading statement from British Gas bore out Ofgem's assessment that we could see another round of price hikes before the winter. But Mr Todd says: "We are expecting a rise as early as July and certainly by August, and it will be a big one – double digits, no doubt."

No surprise, then, that Mr Todd reports more people using his site are looking to join the four million electricity and gas customers in the UK who have signed up to a capped energy tariff.

He explains the principle: "The energy companies buy a future contract on the wholesale market, add a mark-up of 5 or 10 per cent and then issue a guaranteed price. The customer has complete certainty about how much they will pay: the price of each unit, the standing charge and any discounts available for such things as paying by direct debit are capped to a specific date in the future."

Most of the deals offer fixed tariffs to late 2009 or early 2010 and npower has a fix until early 2011, although this isn't available to customers in the Midlands, Yorkshire or the North-east.

However, Mr Wiltshire says there is a gamble involved in fixing as all the capped tariffs currently available are more expensive than the cheapest mainstream rates on the market. For example, the difference between the cheapest capped tariff – E.ON's price protection, which runs to October 2009 – and the best deal today is 12.5 per cent.

But Mr Todd reckons this is a premium worth paying: "Looking at the very likely future directions of prices, I'd say any capped rate that's available for a year with a premium below 15 per cent is a good deal."

How can consumers assess whether capped rates are indeed a better bet than simply holding tight and hoping the inflation in the wholesale markets will subside? More often than not, the most attractive deals right now will be "internet tariffs" – a low rate in return for agreeing to pay bills online. These can be found through a quick search on a price-comparison site. Knowing the cheapest deal will provide a base for working out the premium asked by firms offering a fix. Consumers can then apply Mr Todd's 15 per cent test.

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