Regional rip off – electricity suppliers charge ‘local loyalty tax’

New research has revealed that electricity companies are still cashing in on their old regional monopoly status to the tune of £446 million or £32 a year on average per customer. In some cases suppliers are charging consumers in their ‘home’ or incumbent regions – where they used to be the regional electricity board – up to £54 more than customers in other areas of the country, for exactly the same service. And now suppliers are considering regional pricing for gas customers too:

Local loyalty tax: suppliers charge customers in their ‘home’ region on average £32 or 10% more than they do customers elsewhere

Regional rip off: in their home region suppliers are on average £51 or 16% more expensive than their cheapest competitor like-for-like

Biggest culprit: npower charges customers in its home regions on average £398 compared to £344 paid by other npower customers across the country

Left behind: in most regions every major competitor is cheaper than the old local supplier

Getting away with it: suppliers are under no pressure to stop charging a ‘local loyalty tax’ - they still have on average 53% market share in their ‘home’ regions

Danger: British Gas is now considering bringing in regional pricing for gas customers too

Electricity companies are imposing a £32 or 10% ‘loyalty tax’ on customers living in the regions where they used to be the monopoly supplier, according to new research from uSwitch.com, the independent price comparison and switching service. This is how much more on average a customer in a supplier’s home region will be paying compared to its customers living elsewhere.

All suppliers are operating a regional pricing policy for electricity – charging customers different prices for exactly the same service according to where they live. In 10 out of the 14 electricity regions across the country the old monopoly supplier is more expensive than every one of its competitors in its ‘home’ region. Even in those regions where the incumbent supplier isn’t the most expensive it is still being undercut by at least two other companies.

npower is the worst culprit. It charges customers in its home regions on average £398 a year, £54 more than its other customers who pay £344 - even though they are on the same plan and using the same amount of electricity. This represents a ‘loyalty tax’ of 14%. In comparison, Powergen only charges a £3 premium to customers in its old monopoly regions.

Just over half (53%) of all electricity customers are still with their old regional supplier, rising to 80% for Scottish and Southern Energy in the Scottish Hydro region and falling to 40% for Powergen in the Norweb region. This suggests that suppliers are cashing in on consumer apathy - charging higher prices in their home regions where they can rely on a loyal customer base and higher brand awareness, while offering more attractive deals in other areas.

Ann Robinson, Director of Consumer Policy at uSwitch.com, says: “Tactical regional pricing is a tax on loyalty. Electricity suppliers are treating local longstanding customers like cash cows, using them to subsidise the more competitive prices they are offering to new customers in other regions. Suppliers know they’re onto a good thing – that’s why they’re thinking of introducing a regional pricing policy for gas too.

“At the moment tactical regional pricing works against consumers and in favour of electricity suppliers because around half of households are still with their original local supplier. The tables are very easily turned though. With savings of around 16% on offer consumers just need to take advantage of one of the many cheaper deals available from competitors. Most people could actually take pot luck in switching to another electricity supplier in their area – there is a four in five chance that they will save money without even doing any homework.”

British Gas is now considering introducing regional pricing for gas customers too. As a result consumers could see a greater variance in the prices they pay for gas as well as electricity. There would be clear winners and losers, with those living in areas where British Gas wants to win market share potentially paying less, while those living in areas where the supplier has already got a large customer base paying more. But, if Britain’s biggest supplier does introduce regional pricing for gas, the danger is that other energy companies will swiftly follow suit.