Consumers left out of pocket by complexity of energy tariffs

UK energy bills are so complex that consumers underestimate their bills, often missing out on the best deals as a result, according to data from Co-operative Energy.

With Ofgem’s consultation into tariff complexity closing on 23rd April 2013, Co-operative Energy are proposing ‘Six Big Reforms’ and encouraging consumers to take to Twitter and urge Ofgem to ‘keep it super simple’ via the campaign hash tag #Big6KISS.

The survey, which tested the extent to which consumers understand their energy bills, found that, on average, UK consumers thought their bill came to £945 for the last year. Government figures reveal that last year the average energy bill was in fact £334 higher than people realised, at an average of £1,279.

The survey’s findings suggest a concerning level of awareness among customers about what they are paying, and what they could be saving.

37% of respondents said they chose their current tariff as they believed it was the cheapest available. Yet Co-operative Energy’s follow-up study among this group (using an independent price comparison site to test whether a cheaper tariff was available) found that 82% could be saving money.

Consumers on a dual energy tariff were found to be able to save an average of £180 per year. Those on single gas or electricity tariffs could be saving themselves an average of £107. In fact, only a third of the respondents (35%) in the second study managed to provide complete data for comparison from their bills – indicating just how complex energy bills have become.

The research also suggests a degree of apathy and confusion among customers, which could be costing them money:

65% of energy consumers didn’t know the name of their tariff or couldn’t remember it

Only 16% of energy consumers chose their tariff because it was transparent.

40% of energy consumers chose their current tariff more than a year ago.

One in ten (11%) had moved house and stayed on the property’s existing tariff, rather than shopping around for the best deal.

Only 21% of people were able to accurately identify themselves as having above or below average usage.

Nigel Mason, Co-operative Energy said, “At a time when energy prices are going up and people have less money in their pockets, we need a better way for customers to be sure that they are getting the best deal. I expect those who thought they were on the cheapest tariff would be very surprised to learn that they are not. A saving of £180 is the equivalent of over a fortnight’s weekly shopping. I hope that’s a good enough reason for people to tweet at Ofgem and ask for reforms that will count.”

Commenting on the wider implications of the survey’s findings, Mr. Mason said: “Ofgem's intentions for tariff reform are positive but don’t go far enough. The proposals published last month mean that there will still be at least 72 tariff options per supplier, and the possibility of over 1,000 tariff permutations still in the market. A number of worrying new loopholes have opened up, such as suppliers being allowed to create an unlimited number of special tariffs just for collective switching schemes. Far from simplifying the market for consumers, these final proposals go as far as to enshrine the current complexity in a new rule-book.”

Co-operative Energy’s recommended ‘Six Big Reforms':

Limit of two open tariffs per payment method; one to be a standard (‘evergreen’) variable tariff.

The benchmark tariff –against which the price of all other variations should be compared – must be online, dual fuel, and direct debit.

Surcharges for variations from the benchmark (offline, single fuel, not direct debit) must be expressed as £/year for the average consumer.

No bundled tariffs.

The underlying supplier of ‘white label’ tariffs must be prominently labelled.

Commissions payable to switching sites and collective switching schemes must be disclosed.

Co-operative Energy (@CoopEnergy) feels strongly that the voice of consumers has not been heard in this debate, so are calling on the energy regulator – Ofgem (@Ofgem) – to go further in its reforms and remove these complexities. Consumers are being urged to support the effort by tweeting Ofgem, the Department for Energy and Climate Change (@DeccGovUk) and the large energy suppliers, asking them to ‘keep it super simple’ via the campaign hash tag #Big6KISS.

For more information, visit cooperativeenergy.coop/big6kiss.