2005-11-07

Money: Scottish Energy Bill Schemes a Rip Off

Hundreds of thousands of Scots risk paying too much for gas and electricity because fixed-price payment plans from 'scaremongering' energy firms offer poor value, consumer groups have warned. Price-capping schemes -- under which users pay a premium rate in exchange for avoiding future increases -- often offer less value in the long term than ordinary billing plans, experts say. The multi-year plans, similar to fixed-rate mortgages, are becoming increasingly popular amid soaring energy costs and predictions of a cold winter. But industry experts say the price of gas is likely to fall by the middle of 2007 because of improved supplies -- leaving thousands of consumers with artificially inflated bills. And with many companies charging customers for switching their energy supplier before the terms of the contract have expired, those people who are tied to a particular provider beyond the date when prices are expected to fall will lose out. Some companies are charging customers up to 8 per cent more for the privilege of avoiding future price increases -- adding up to 100.00_GBP on the average household annual bill -- even though prices are thought to have already peaked. Electricity prices are also expected to ease over the next few years, as a result of deregulation across Europe. Mr.David Scott, an analyst with 'Datamonitor', said companies were playing on fears of future price rises.
'Some companies are simply scaremongering,' he said.
'Many consumers misunderstand the reasons behind price rises and aren't aware that they are likely to drop in the medium term. 'These companies take advantage of that fear.
'Many of these pre-payment plans are not offering good value for money, especially since they are based on prices that have already risen by large amounts recently.'
Among the most widely criticised schemes is 'Scottish Gas', whose price-protection plan means energy bills are frozen until 2010. Gas-only customers pay a premium of 3 per cent above the current rates (which have just gone up by 14.2 per cent), while electricity-only customers can freeze their bills at a discounted rate of 4.8 per cent. This means that customers who get their gas and electricity from 'Scottish Gas' will effectively pay nothing extra to freeze prices, although bills have just gone up by an average of 96_GBP. There is, however, a cancellation fee of 45_GBP for changing gas supplier before the end of 2008-04, or 30_GBP if customers switch electricity provider, meaning those who wish to take advantage of falling gas prices would be penalised. Although some short-term savings appear high, the expectation that the price of gas has peaked and is set to fall means those locked into the current fixed price will end up paying a premium for their energy in the longer term. Despite locking customers into paying higher prices until 2010, 'The Chief Executive' of 'Scottish Gas's' parent company, 'Centrica', has admitted wholesale gas prices will fall. 'Powergen', 'EDF' and 'ScottishPower' also offer fixed deals, although most are fixed only as far as 2007 or 2008 -- reducing the risk to consumers if prices change. 'ScottishPower' says one in five of its five million customers across Britain have already signed up for its long-term scheme, although it insists that many have already made annual savings of up to 85_GBP under the plan. Other firms, such as 'Scottish Hydro', are not actively promoting fixed-price schemes because they do not believe they will necessarily benefit customers. In total, industry experts estimate that almost a million Scots are already on fixed-price plans. Ms.Karen Darby, of consumer website 'Simply Switch', said:
'It is all to do with how risk-averse you are as a customer.
'Many will find it easier to stick with the ordinary payment plan.
'Some of these companies are charging a pretty hefty premium, so consumers really have to do their research to avoid paying too much. 'One of the side-effects of these complex deals is that it makes it harder for consumers to make simple price comparisons between companies.'
A spokesman for the industry regulator, 'Ofgem', said:
'We do believe that pressure on gas supplies will be eased by the middle of 2007, so prices should fall. Even though prices have risen sharply in recent months, bills are much lower in real terms than they were prior to privatisation.'
'The European Commission' is also investigating the number of producers who control the supply of gas to the UK, which is currently keeping wholesale prices artificially high. If this dominance is broken up, prices could tumble further. Mr.Graham Kerr, of watchdog 'Energywatch Scotland', urged caution when it comes to signing up for a long-term energy deal. He added:
'In most walks of life when you commit to a company for a substantial period of time you would expect to get a discount; it seems peculiar that when you commit your custom to an energy company you may well be getting penalised for it.'
'Revealed: true cost of 'saver' deals ', ALASTAIR JAMIESON, The Scotsman, 2005-11-07, Mo

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