You've got the power

To stop burning your money away, that is. With competition hotting up in the gas and electricity industry, consumers can save up to £200 a year just by switching suppliers. No wonder the companies are prepared to talk.
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The Independent Online

If you still buy your gas from British Gas and have never changed your electricity supply from the old regional electricity company, then you are almost certainly wasting lots of money - probably £50 to £200 a year.

If you still buy your gas from British Gas and have never changed your electricity supply from the old regional electricity company, then you are almost certainly wasting lots of money - probably £50 to £200 a year.

Privatisation and competition in the energy supply industry have significantly cut prices and improved services. Yet the vast majority of consumers are failing to take advantage of the opportunity to cut costs.

As of last month, little more than a quarter of gas customers had dumped British Gas - 5.6 million customers had switched, out of 19.9 million gas users. And in electricity the figure is just 17 per cent, with 4.8 million moving their account out of 28.1 million households.

The incentives for moving can be substantial. Just how much can be saved depends on several factors - location, energy usage and method of payment. There are also cost reductions on offer for bundling up both gas and electricity purchase from one supplier, but it is usually possible to save more by buying them separately from the cheapest suppliers of each.

Generally, it costs least for electricity or gas if paying by monthly direct debit, as suppliers will give discounts. But, as direct debits will usually be calculated against historic usage or estimate rather than meter readings, it is important to check this does not lead to the building up of large credit balances which may need to be reclaimed.

Other discounts are available for early payments. British Gas offers a reduction of £7.56 or 30 per cent - whichever is the lesser - for payment within 10 days of receiving a quarterly bill. This compares with approximately 11 per cent off bills for paying by direct debit, or some 13 per cent for advance payment.

The most expensive method of payment is prepaid meter, but for many people who rent a house, especially if they also have no bank account, there may be no alternative. Competition is lowest in this market and British Gas remains one of the cheapest suppliers, though it is possible to save nearly £40 a year by switching to Southern Electric Gas, according to Which? magazine.

Probably one of the main reasons why more consumers have not moved to cheaper energy suppliers is the difficulty in comparing prices between companies. Each operates pricing structures that differ. Those that offer the lowest unit charges typically have a higher standing charge, and vice versa. The simple rule of thumb is low or no standing charges is good for low consumption users, and the cheapest unit prices are best for heavy users. Electricity companies also have different pricing structures in different regions.

It is imperative consumers use their actual situations to compare prices, and there are several ways to do this. Which? magazine has undertaken detailed studies of prices and its website - www.which.net, open to subscribers only - has a breakdown of prices in each region, as does the website of the Government energy regulator Ofgem (the Office of Gas and Electricity Markets): www.ofgem.gov.uk.

There are also an increasing range of free websites that compare prices, based on household's actual consumption history. One of the best is www.ukenergy.co.uk. However, some websites may not be completely accurate, because they are not up-to-date or do not have information from all the suppliers. Ofgem will soon have in place a system to endorse accurate websites - names and web addresses will then be placed on Ofgem's own website. Even then it is sensible to contact the three cheapest suppliers listed by one of the websites to confirm costs, asking also if they offer any additional customer benefits.

Ofgem spokesman Richard Hunt says: "Our website seems complex and complicated because the market is complex and complicated. We hope these [web] outfits are giving the correct information. But if consumers want confirmation they should check with our website. The information we are supplying is correct and up-to-date."

A typical household buys about £350 of gas and £250 of electricity annually, says Which?. Ukenergy's site calculates that a London household that switches electricity from London Electricity to Swalec can bring this bill down to £204 - a saving of £46. Reductions from moving electricity suppliers are lower than with gas, because a higher proportion of the electricity bill represents transmission costs. But prices should fall further as the new wholesale buying systems have their impact.

It is possible to save £91 annually on that typical gas bill by switching from British Gas to Independent Energy. Taken together, then, it is possible to save £137 for that average household. Bundling these supplies together into a single contract is not worth it, in the London example, as the best combined saving is from Independent Energy at £127. These quoted savings are boosted by moving from payment by quarterly cheque, to paying monthly by direct debit.

But it is important to realise savings will differ according to region and usage. A household that uses just £150 in gas a year will save most, calculates ukenergy, by moving to Powergen, which will be £49 less than a quarterly British Gas bill. British Gas itself offers a reduction of £28 on this size bill for moving to monthly direct debit.

A household in Southern England which buys £150 of electricity will find Swalec cheapest, at £26 less than their traditional supplier, Scottish & Southern. Customers of Yorkshire Electricity in its home area, with average consumption of £250 annually, would save £48 by moving to Northern Electric & Gas or Scottish Power, but these are just £1 a year cheaper than Independent Energy and £2 less than Swalec.

The heaviest consumers - those who spend more than £1,100 or so annually on gas or electricity - should try to negotiate their own arrangements, using the prices quoted by www.ukenergy.co.uk or Which? as guidance only. Supply regulations do not permit consumers, such as flat owners, to join together to negotiate lower prices.

Several non-energy companies provide partnership arrangements, which claim to cut the cost of bills by introducing members or customers to energy suppliers. These include the TUC, which works with Scottish Power to supply gas and electricity through a related company called Union Energy. Saga, which provides holiday and insurance services and publishes a magazine for the over-50s, partners Northern Electric. But, while these so-called affinity deals are at the cheaper end of the market, they do not offer the lowest prices available.

The problems and risks involved in switching suppliers are slight. There is no alteration to the supply arrangements: only the billing changes. Consolidation taking place in the industry could lead to a reduction in the number of suppliers. But the regulator, Ofgem, is required to obtain a replacement supplier should any company in the market cease trading.

Of course, the companies offering the lowest prices today may not be the cheapest in a few days, let alone next year. But market volatility has dropped substantially since the monopolies ended in the late 1990s and there is nothing to stop customers moving on again if the new supplier raises prices. Suppliers usually require 28 days notice to cancel a contract.

"People should shop around to look at the best deal for them," says Sharon Darcy, principal policy adviser at the Consumers' Association, publishers of Which?. "The market is starting to settle down so the problems of people being transferred erroneously have largely gone, though not entirely. Now there are value-added services starting to emerge. There is choice out there, and it is real choice."

Ms Darcy says one of those real benefits is the improvement to customer service centres, with many companies now running 24-hour call lines. There can also be financial gains from some of the other product offers from energy suppliers, such as boiler insurance. But, adds Ms Darcy, consumers should check they are not simply duplicating existing cover.

One of the other real benefits of the new system is both gas and electricity suppliers are now required by law to provide energy saving advice to customers who request it. This in itself can achieve big savings, though we will return to this subject in a future article in the series.

It is also possible now to opt for "green electricity" using a source, such as hydroelectricity, wind power or solar energy, which does not produce CO2 emissions. Moving to a green energy supply source will typically be about £35 a year more expensive than using non-renewable energy, such as coal or gas, though it may still be cheaper than existing supply arrangements. There are also so-called green gas supply options, which are surcharges on gas bills to plant trees to absorb CO2 emissions equivalent to the customer's consumption.

Altogether the energy market has been transformed over the last decade. Even those consumers who have not changed their suppliers have received significant price cuts. But it is a real shame that so many more have failed to take advantage of those extra savings that are possible by shifting suppliers. So go on, save yourself that £50 or maybe £200 - pull that switch.

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