Energy bills: Warm glow for energy firms as households fail to switch

Thursday's increase in Scottish Power's energy bills, exactly a month before Christmas, was the first in a series of hikes that will intensify the squeeze on household finances. Yet while changing to a cheaper energy deal has never been easier, the vast majority of Scots continue to accept price increases that many experts feel are unjustified.

Scottish Power's 52 a year increase in the average dual fuel bill, announced only last week, came into force just as temperatures began to plummet.

Its 2.5 million customers have seen their gas and electricity prices increase by an average of 2 and 8.9 per cent respectively and those on the standard rate will now be paying 419 a year more on average than those on the cheapest energy plan in the market, according to uSwitch.com.

And more increases are on the way as temperatures begin to plummet.

Scottish & Southern Energy customers will see prices go up by an average of 9.4 per cent next week, adding 65 to the average bill. British Gas will raise gas and electricity bills by 7 per cent from 10 December, blaming a 25 per cent increase in wholesale gas prices since the spring.

More: energy price rise

• How to switch

• Consumers hit by Scottish Power discount rise

• The energy adviser's story

EDF has bucked the trend with a pledge to freeze its prices over the winter, although it was alone among the big six to raise its prices in the summer. All eyes are now on Eon and Npower, although the former deflected attention from speculation over its plans by launching a new fixed rate tariff this week that is the cheapest fixed plan on offer from any of the big six.

Consumer groups say the latest increases are unjustified. Suppliers blamed rising wholesale prices when energy bills rose by 42 per cent in 2008, yet plunging wholesale prices in 2009 resulted in bills falling by just 8 per cent. The cost of wholesale gas, on which bills are largely based, has crept up this year but is still half the level of 2008, while the utility companies have enjoyed healthy profits.

However there's no doubting that prices will continue rising over the long-term, putting the onus on consumers to do what they can to minimise their costs. But most households continue to suffer the higher costs without taking action. Consumer Focus Scotland said nearly half of all Scots are missing out on the savings on offer from switching to a better deal despite the increasing ease of doing so.

It recently published research showing that about a million Scottish households could save 100 a year on average by transferring to a cheaper tariff.The impact of price rises is exacerbated by the fact that the people least likely to switch are those that need the savings the most.

The process involved in switching - either online or by phone - is increasingly straightforward, yet the general perception remains that it's complicated and too much hassle.

Trisha McAuley, deputy director at Consumer Focus Scotland, said: "Years ago there were administration problems in switching but that's no longer the case. Those who do switch find the process easier than they expected," said McAuley.

And the savings can make a huge difference to household finances. In one case seen by Consumer Focus Scotland, a retired couple in the Borders who had never switched previously managed to slash their energy costs from 2,400 to 1,800 a year by changing supplier.

Another common objection to switching - loyalty to the incumbent supplier - is also easily surmounted, as it's relatively easy to get a better deal without moving supplier.

"Call your supplier and negotiate a better tariff," urged McAuley.

"These firms have millions of customers but they continue to dig their heels in when it comes to telling people about their deals."

Suppliers have been under pressure from Ofgem, the energy regulator, to improve their communication with customers, but they continue to fall short, said McAuley.

"Ofgem has been working hard on getting firms to make it clear to customers what their consumption is, so they can compare more effectively, but some of the bills still don't make sense even to me," said McAuley.

Yet while switching can help reduce the impact of higher bills over the short-term, the long-term upwards trend in energy prices demands that more is done to reduce consumption. More than 200 billion is needed over the next decade to secure energy supplies for consumers, according to Ofgem, and the reality is that energy firms will recoup these costs through household bills.

The Scottish government recently unveiled its Energy Efficiency Action Plan, which targets a 12 per cent cut in energy use by 2020. It claimed reduced consumption could reduce Scottish household energy bills by a total of 2 billion over the next decade.

But while McAuley welcomed the initiative, she expressed concerns over the cost for low income and vulnerable households of meeting energy efficiency targets. Scottish government figures published on Thursday show that over three-quarters of a million households in Scotland are already in the fuel poverty bracket, unable to keep their homes warm. And for every 1 per cent rise in energy costs, another 8,000 households in Scotland are pushed into fuel poverty.

"In the long term we have to make homes more energy efficient and reduce consumption," said McAuley.

"But while new builds have got stringent standards, existing housing stock is not energy efficient - that has to be tackled if we are to lift people out of fuel poverty."