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Take Your Seat At The Energy Poker Table

Neil Faulkner
by Lovemoney Staff Neil Faulkner on 29 January 2009  |  Comments 5 comments

We talk about the next gas and electricity price moves and timing your tariff switch.

Last Thursday, British Gas declared a 10% reduction in the price of gas for most of its gas customers. Any price cut is good news, but what was left out of the announcement is also significant. Firstly, Britain's largest supplier didn't mention any reduction in the price of electricity, which British Gas supplies to about 6 million households. Secondly, the company didn't publish the new tariff rates with the announcement.

This is the first move in a poker game that is likely to last another four weeks, until the date it becomes effective on 19 February. Here is how I think the game will be played.

10% on gas...Is that it?

On reflection, probably yes. British Gas is the biggest gas supplier in the UK, so if it lowers its price by just 10%, other suppliers won't feel pressure to move prices by much more. (Remember that it's only BG's more expensive tariffs that were made a bit cheaper. The cheaper ones weren't affected.)

Things are different with electricity, where British Gas may be waiting for another supplier to cut first. In other words, a small cut on electricity is still on the cards. Florian Ritzmann* (you should know that name by now as a man who accurately forecasts price moves), reckons the cuts will total less than 10% across the board.

When to look for the best deal

When a big-six company announces price changes, the others follow. Provided you're not on one of their standard tariffs, it usually makes sense to wait till they've all announced price changes.

If you're on a standard tariff, these are so hideously expensive that you should switch to the cheapest tariff immediately, and be grateful for the massive savings you make until the next round of price changes. If you've recently moved house, you'll have been put on a standard tariff automatically. If you've never switched, you'll also be on a standard tariff.

It's not so straightforward for those of us who have switched before. Sometimes the suppliers' prices take three or four months to come back into line, plus it then takes another four weeks perhaps to switch, by which point you'll have lost out on the latest round of changes for approaching half-a-year. This has led me on one particularly drawn-out occasion to recommend that you don't wait for the last dawdler to match the others after five of the big six had changed. Every poker game is different.

For now, I'd still wait. In this case, British Gas hasn't reduced its cheapest tariff for gas, and I don't expect it will for electricity. There's a fair chance the competition won't either. We should wait and see what the next two big suppliers do, and then consider timing once again.

Why we should bother switching again

I just wrote: `Sometimes the suppliers' prices take three or four months to come back into line.' You may be wondering, then, `What is the point in switching if they're all in line?' It doesn't work like that.

New tariffs, and new versions of tariffs, are created every few months. Newer ones are cheaper, and older ones are allowed to drift upwards in price. By not switching, your tariff will stay in line with all the other energy providers' tariffs, but it'll stay in line with a version of tariffs that is getting steadily more expensive. You'll want the latest tariffs to benefit from the cheapest energy.

*Florian Ritzmann is Product Director at Xelector, which powers our  gas and electricity comparison tool. He's been working with energy suppliers for 10 years and is a reliable source of information for me and, therefore, Fool readers!

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Comments (5)

  • Jeannette110
    Love rating 0
    Jeannette110 said

    It may be useful for people to remember when switiching that they should include any additional discounts they receive (this should be clearly stated on your bill). For example I receive a 17% additional discount. So it would not be any good just putting the number of units. What I do is deduct 17% from the pre-vat unit cost before entering onto comparison site. It might be a good idea for Motley Fool to put a 'percentage discount' on their comparison tool.

    Cheers Jeannette

    Report on 08 February 2009  |  Love thisLove  0 loves
  • Neil Faulkner
    Love rating 32
    Neil Faulkner said

    Hi Confused114. You asked how to avoid the pitfall of exit fees. I f you compare prices using Lovemoney's tool, there is a tariff details button ext to each of the tariffs that explains such things as the exit fees, if any, and how long you're tied in for.

    Hi Jeanette110. You made a suggestion about putting additional discounts into comparison tools. All comparison tools comply with guidelines agreed with the regulator on including discounts. Exit fees aren't included, presumably because there still aren't many of them, and they're generally for a year or less and most people don't switch more than once a year. Aso, comparison sites don't know when you'll leave, so they can't guess.

    However, all comparison sites must include annual and dual fuel discounts for the reverse reasons I just mentioned. Those figures are already included in the quotes.

    Neil (the author)

    Report on 07 May 2009  |  Love thisLove  0 loves

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