The Great Energy Rip Off

GREAT ENERGY RIP OFFRobert Halfon MP

PREFACE

I was outraged to hear from a constituent that his elderly mother had received a letter from the Co-op Energy Company stating that she was going to be charged £63 extra unless she switched to pay her gas and electric bills by direct debit. It is understandable that there is an extra administrative cost to not paying bills by direct debit, but £63 is excessive. Shockingly, upon investigation, I found that the majority of energy companies across the UK impose these extra charges, or instead discount bills substantially for those paying by direct debit. This is particularly the case for the Big Six. This is unfair, and hurts the low paid and vulnerable the most. However, some smaller companies charge their customers exactly the same regardless of how their customers pay their bills. All companies should attempt to follow this example, as it shows that it is even more unreasonable for some of these companies to charge such exorbitant amounts.

INTRODUCTION

The poorest and most vulnerable are routinely ripped off by energy companies when it comes to paying for the most essential of items, gas and electric. In the UK, 45% of people do not pay their electricity bills by Direct Debit.1 Those on lower incomes often prefer to manage their finances by paying for things by paying for things by cash, and some people do not even have access to bank accounts. In 2010, it was estimated that almost 1 million UK adults do not have a bank account, making it impossible for them to pay by Direct Debit.2 These people are sadly also most at risk of living in fuel poverty, and living in the least energy efficient houses.3 It is therefore unreasonable for energy companies to add such extortionate charges onto energy bills, targeting these people. Furthermore, even those who pay their bills on time, even if they do not pay by direct debit, subsidise those who do not, as companies often calculate these extra charges into what they charge everyone for not paying by direct debit.

FINDINGS:

● Out of 32 energy companies surveyed:

● 17 energy companies charged more to customers who were not paying by Direct Debit

● DECC figures show that the average annual surcharges were £114 in total - £41 for electricity and £73 for gas4.

1 See Appendix 5 2 http://www.bbc.co.uk/news/102771513 http://www.savethechildren.org.uk/sites/default/files/docs/poverty_briefing_1.pdf4 See Appendix 3

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● One company (Spark Energy) said that paying by another method could cost customers up to £390.

● 5 energy companies charge exactly their customers exactly the same regardless of how they pay, such as Good Energy, Green Energy UK, and Ecotricity.

● The majority of water companies do not charge their customers anything extra for not paying by direct debit, such as Bristol Water, Anglian Water, or Severn Trent Water, or charge a much smaller administration fee than energy companies, around £5 per year. BT charges their customers £24 a year for not paying by direct debit, to cover administration costs.

RECOMMENDATIONS:

• Put a limit on the discount or surcharge which a company can apply for using different payment methods.

● Companies are charging up to £100 per year for the expense of sending and receiving quarterly bills. This is excessive.

● Many companies, such as Ecotricity, Good Energy, Green Energy UK, LoCO2 make no distinction based on payment method and many water companies charge nothing or less than £5 for using other payment methods.

● I would reccomend £24 per year (£2 per month) as a reasonable limit to cover costs.

• Create more transparency● Energy companies should make it clear to customers why they are being charged more

for using a particular payment method.● Many companies are including the cost of late payment and sending reminders in their

justification for charging more for traditional payment methods. This is not fair on non-direct debit customers who always pay on time.

● These extra costs created by some customers should be paid for by late fees. In this way, the culprits are directly accountable and innocent people do not have to subsidise them.

• Investigate further● There should be a government inquiry to look at why some companies are able to allow

customers to pay by whichever method they prefer without incurring an extra cost.● This would ensure that businesses are not hoodwinking vulnerable bill-payers, who

might be unaware or unfamiliar with direct debit, into paying more than they have to.● Companies who are clearly using non-direct debit customer to subsidise their other

customers should be condemned.

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APPENDIX

Appendix 1: Charges or Discounts Offered by Water Companies

Water Company

Discount or Credit

Source Contact

Affinity Water

£0 (Draw to win £500)

https://www.affinitywater.co.uk/direct-debit.aspx Not responded

Albion Water

£0 Albion Water does not offer a discount to those customers who choose to pay by direct debit.

Confirmed by email

9/1/2014

Anglian Water

£0 There is no difference in our tariffs based on payment method.

Confirmed by email

9/1/2014

Bristol Water

£0 I confirm that we don’t currently offer Direct Debit discounts to customers and conversely we don’t charge more to those customers who choose not to pay by Direct Debit.

Confirmed by email 9/1/2014

Cambridge Water

£3.00/year https://www.cambridge-water.co.uk/customers/direct-debit

Cholderton and District Water*

n/a (Direct Debit not offered)

http://www.sitesplus.co.uk/user_docs/274/File/Code%20of%20practice%20household%20customers__amended%2025%20Apr%2010.pdf

Dee Valley Water

£0/month I can confirm that Dee Valley Water do not offer customers who choose to pay their bill by direct debit any rebate for doing so.


Dwr Cymru Welsh Water

£0 http://www.dwrcymru.com/en/My-Account/I-want-to-pay-my-bill/Set-up-a-Direct-Debit.aspx

Not responded

Essex and Suffolk Water

£3.50/year https://www.eswater.co.uk/your-home/your-account/Direct-Debit.aspx?

Confirmed by email

Northern £0 http://www.niwater.com/paying-your-bill/ Not

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Ireland Water

responded

Northumbrian Water

£7.00/year (£3.50 for sewerage/£3.50 for water)

http://www.nwl.co.uk/your-home/your-account/Direct-Debit.aspx

Not responded

Peel Water Networks

£5/year http://www.peel.co.uk/pwnl/domestic/payment Not responded

Portsmouth Water

£0 http://www.portsmouthwater.co.uk/customer_services/default.aspx?id=242

Not responded

Scottish Water

£0 http://www2.scottishwater.co.uk/portal/page/portal/SCOTTISH_WATER_HOME/INTERNET_HOMEPAGE/INTERNET_BUSINESS_HOME_PAGE_3/INTERNET_BUSINESS_YOUR_ACCOUNT/INTERNET_BUSINESS_3_DIRECT_DEBIT/DIRECT_DEBIT_03_04.PDF

Not responded

Sembcorp Bournemouth Water

£0 http://www.sembcorpbw.co.uk/your-bill/ways-to-pay/online-billpay.aspx

Not responded

Severn Trent Water

£0 Severn Trent Water’s customers are able to pay by direct debit and online, these services are not discounted.

Confirmed by email

9/1/2014

South East Water

£5/year https://www.southeastwater.co.uk/your-account/paying-your-bill/set-up-your-direct-debit#.Us0trmRdWz5

Not responded

South Staffs Water

£0 http://www.south-staffs-water.co.uk/your_home/payment_options.asp

Not responded

South West Water

£0 https://www.southwestwater.co.uk/index.cfm?articleid=1364

Not responded

Southern Water

£0 http://www.southernwater.co.uk/at-home/your-bill-and-account/paying-your-bill/pay-by-direct-debit/

Not responded

Sutton and £0 http://www.waterplc.com/pages/home/about-your- Not

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East Surrey Water

bill/faqs/#directdebitbenefits responded

Thames Water

£0 http://www.thameswater.co.uk/your-account/601.htm

Not responded

United Utilities

£5/year http://www.unitedutilities.com/other-ways-i-can-pay.aspx

Not responded

Wessex Water

£0 http://www.wessexwater.co.uk/customers/twocol.aspx?id=216&linkidentifier=id&itemid=216

Not responded

Yorkshire Water

£0 http://www.yorkshirewater.com/your-account/making-a-payment/sign-up-for-direct-debit/what-is-direct-debit.aspx

Not responded

Appendix 2: Charges or Discounts Charged by Energy Companies (Based on Ofgem average energy consumption: Gas - 16,500 kWh, Electricity - 3,300 kWh)

Utility Company

Discount (£/mont

h)

Source Contact

Airtricity £80 per annum (£40 per fuel)

I can confirm that the price reduction when paying by direct debit is £40 per fuel, per customer, per year.


Atlantic £80 per annum (£40 per fuel)



Better Energy

10p more per day (Average £38)

confirmed by email

British Gas £73 If we take an average bill across all regions at average levels of consumption is £1,253. This becomes £1,180 with


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direct debit discount. Meaning a £73 discount (this figure remains the case across all regions).

Co-operative Energy

£60/year ≈ 4.9%

£60 per annum Confirmed by Ramsay Dunning 7/1/2014

Daligas DD only http://www.daligas.co.uk/payment

On website

Ebico £0 https://www.ebico.org.uk/customer-care/payment-options

Not responded

Ecotricity £0 Ecotricity offers just one tariff for electricity and gas, and all our customers are on the latest best price, regardless when they joined or their payment method.


EDF £73 ‘at current Ofgem typical consumption (3200kWh electricity, 13500kWh gas), an EDF Energy Direct Debit customer could save £74 per year including VAT compared to a customer paying by Credit.


Eon £70 (£35 per fuel)

I can confirm that our customers who choose to pay by monthly Direct Debit, receive a discount of £35 per fuel, per annum.


First Utility £96 We are transparent on our website that customers can choose to pay via other methods, such as cheque or cash, for which we apply an £8 per month administrative


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charge.

Flow DD Only

Good Energy

£0 Good Energy currently offers the same prices and pricing structure for customers regardless of their payment method.This means that there are currently no discounts for payment by direct debit, for example. It also means that there are nosurcharges applied to customers that wish to pay by other means – such as sending a cheque in the post.


Green Energy UK

£0 We operate a simple tariff structure and do not differentiate between payment type.

Whilst we understand the savings in administration, cost of working capital, and convenience of the Direct Debit method and encourage our customers to pay using Direct Debit we acknowledge that DD is not always the best method for some customers.


Green Star Energy

approx. £30/year

Phone - 0800 012 4510 Not responded

iSupply Energy

n/a (Only offer direct debit)

http://www.isupplyenergy.co.uk/Products.aspx and confirmed by phone - 0330 2020298

Confirmed by phone

7

LoCO2 £0 There is no difference in the cost between different payment types.


M&S Energy

£80 per annum (£40 per fuel)



Npower £40.00 per annum for electricity, £50.00 per annum for gas.

We offer Direct Debit customers lower charges, £40.00 per annum for electricity and £50.00 per annum for gas, compared to customers paying via an alternative method.


Ovo Energy

DD OnlyThank you for your enquiry. At Ovo we only offer Direct Debit as a method of payment to our customers and this is the case across both our tariffs; New Energy and Green Energy.Our customers pay for their energy a month in advance because we buy their energy in advance. This helps us keep prices down, as we can buy energy at the lowest possible price. It also helps our customers keep their account in credit so that they stay on top of their bills and don’t fall into ‘energy debt’. We offer 3% Ovo Interest Reward on any credit our customers have in their account.


Power NI £26 per Monthly Direct Debit Confirmed byemail 09/01/2014

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annum (quarterly)£40 per annum (monthly)

4% discount up to a maximum of £40 per yearQuarterly Direct Debit2.5% discount up to a maximum of £26 per year

Sainsbury's Energy

£73 average

Based upon your constituency office post code (CM20 2NQ), a Sainsbury’s Energy Standard tariff bill* is:· £1,253 by Cash or Cheque· £1,180 by Direct DebitThis reflects a discount of £73 at average consumption (based on average consumption of 13,500 kWh for gas and 3,200 kWh for single rate electricity, rounded and including VAT.)


Scottish Hydro




Scottish Power

Have not responded

Southern Electric




Spark Energy

£390 per annum, (electricity up to £227, gas up to £163)


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SSE £80 per annum (£40 per fuel)



SWALEC £80 per annum (£40 per fuel)



Utilita Have not responded

Utility Warehouse

Have not responded

Woodland Trust Energy

DD ONLY

For Woodland Trust customers, all accounts are set up with a monthly direct debit. There is not an option for quarterly credit. We offer a flexible direct debit, in which each months payment varies dependant on usage. Otherwise it is a fixed monthly direct debit. There are no discounts or special offers for either.

We believe it is important to treat all our customers fairly. We are predominantly an online company, which is the main reason we don't offer quarterly credit.


Zog Energy

DD ONLY

Zog Energy is a new entrant to the market with an aim to keep things simple for customers. We only offer two tariffs both of these have fixed prices paid by monthly direct debit. We don't offer quarterly credit payment as an option.

Confirmed by email 9/1/2014Confirmed by email 9/1/2014

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BT £24 per annum

BT’s PPF is £2 a month, calculated on costs incurred as a direct result of customers paying by non-automated methods such as payment handling, card fees and customer service.

Unlike other companies, BT provides a simple, low-cost telephone service for those on low incomes, BT Basic. BT Basic customers do not pay this fee.


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Appendix 3: Email from a House of Commons Library Specialist

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Appendix 4: Email from Energy Providers

a) Email chain with Spark Energy

Dear Mr Halfon Thank you for your email last night. From October 2013 energy providers are able to provide four core tariffs which are based on meter type and payment type – these are new requirements from Ofgem’s Retail Market Review which is designed to make things simpler, clearer and fairer for the consumer. In-line with that, and similar to other energy companies we have our four core tariffs as follows: - Direct Debit Saver (pay monthly by Direct Debit)- Monthly Premium (pay by card / cash on receipt of bill each month)- Direct Debit Advance (monthly Direct Debit with an upfront payment)- PAYG Saver (pay using top up key in a prepayment meter) Our most economical tariff is Direct Debit Advance which involves a one month advance payment (we can buy energy cheaper and pass savings onto customer). At the moment this is the most economical tariff in the UK. Second most economical is Direct Debit Saver which involves a regular monthly Direct Debit. The customer receives a quarterly statement to allow them, and us, to keep track of their payments vs usage. We review Direct Debit payments every six months based on energy usage. Our most expensive tariff is Monthly Premium which involves sending out monthly bills to customers which they pay by card / cash. These are typically more expensive due to the admin costs associated and traditionally higher levels of bad debt throughout the industry. Annual costs depend on geography and customer usage, but a comparison can be made on our website or on the UKs leading switching sites like uSwitch or moneysupermarket. You asked about “quarterly credits” – we don’t have a tariff fitting that description. The standing charges and unit rates (that make up the tariff) vary depending on meter type and payment type. We don’t have any tie-ins or exit penalties, so if customer wants to choose another supplier, or another tariff in our range they can do so at any time. Today, Spark provide energy to over 80,000 customers throughout the UK and are now one of the top 5 employers in the Scottish Borders. We have over 200 staff who share the same aim of being number one for customer service in the energy industry. I hope this helps, but if you require any further information please let me know. Best Regards

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Scott

------------

Dear Scott,

Thank you for your response which was very helpful.

However, we also need a figure for the effective discount which you provide for consumers paying by direct debit. From your website, the average difference between Direct Debit Saver (15.0p/kWh for electricity and 4.392p/kWh for gas) and Monthly Premium (21.9p/kWh for electricity and 5.381p/kWh for gas) appears to be 6.9p/kWh for electricity and 0.989p/kWh.

Following Ofgem's official figures on average household usage (Gas - 16,500 kWh, Electricity - 3,300 kWh) this would amount to a saving of £390 per year.

Does this figure fairly represent your policy on direct debit? I need a response in the next hour as I will be making my report public today.

Very best wishes,Robert

----------

Hi Robert

Yes, that's correct. If a customer chooses to pay by Direct Debit, depending on usage and where they are in the country, they could save up to £390 or thereabouts.

They can save more by paying Direct Debit with an advance payment as you can see on the web.

b) Email Chain with SSE

Dear Mr Halfon,

Many thanks for your email.

As a result of Ofgem's Retail Market Review, suppliers are no longer be able to offer certain types of discounts, including prompt payment discounts, loyalty-based discounts, and percentage-based discounts. However, we are still able to offer discounts to those customers who elect to pay by Direct Debit and receive paperless bills. These reduced prices reflect the lower cost to SSE resulting from customers making those choices.

In any structural reform, there will always be some customers who benefit more than others. Despite this, on balance we think that this approach is generally the right thing to do for customers and should lead to increased engagement and competition in the market - which ultimately has to be a good thing for customers.

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We would be very happy to meet to discuss this in more detail. In addition, we will shortly come back to you with figures on the price differential for those customers paying by direct debit.

In the meantime, if you have any further questions please feel free to get in touch.

Best wishes,

Sophie

----------

Dear Mr Halfon,

Following on from my email below, I can confirm that the price reduction when paying by direct debit is £40 per fuel, per customer, per year. Customers can save an additional £6 per year per fuel for going paperless.

This figure comes off the standing charge and reflects the reduced costs incurred by SSE as a result of the customer making these choices.

If you have any further questions, please feel free to get in touch.

Best wishes,

Sophie

C) Email chain with Eon Energy:

Dear Mr Halfon Thank you for your questions regarding the differences between paying utility bills by direct debit and quarterly credit. I’m sorry that no-one called you back following your call yesterday. There have been some recent regulatory changes which came into effect this month, as part of Ofgem’s Retail Market Review (RMR) and all our tariffs comply with these changes. I can confirm that our customers who choose to pay by monthly Direct Debit, receive a discount of £35 per fuel, per annum. As part of our licence conditions we have to ensure all our payment methods are ‘cost-reflective’ i.e. they must reflect the cost to the company for administering the payment. Direct debit costs less to administer than quarterly credit due to, for example, lower bad debt and account servicing costs. This discount applies to all of our four tariffs. Customers who chose to pay on receipt of their bill each quarter receive no discount for this way of paying. Prior to RMR suppliers were able to offer a prompt payment discount.

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Our customers can receive additional discounts for having both fuels with E.ON of £20. There is also a discount for paperless billing at £5 per fuel. We would encourage our customers to call us to discuss their payment method, to ensure they understand the options and discounts available. If you have any further questions please give me a call.

D) Statement from First Utility:

“We are committed to offering our customers low-price energy deals and pledged not to raise our prices through to the end of this winter while the Big Six all made increases. We felt this was the right thing to do to give our customers the peace of mind that bills won't go up while energy usage is at its highest at the coldest time of year.

“We offer three simple tariffs protected by a price promise to always be cheaper than the Big Six standard tariffs. All our tariffs are priced as payment by monthly direct debit which is how the vast majority of customers prefer to pay. We are transparent on our website that customers can choose to pay via other methods, such as cheque or cash, for which we apply an £8 per month administrative charge.”

Appendix 5: Figures from House of Commons Library showing percentage of people who use each payment method for electricity

Variation of payment methods for electricity (%) Standard electricity (UK)

Credit Direct Debit Pre-payment 2007 39 47 14 2008 38 49 14 2009 36 50 14 2010 33 52 15 2011 31 53 15 2012 30 54 16 2013 29 55 16

Economy 7 electricity (UK) Credit Direct Debit Pre-payment

2007 38 45 17 2008 37 46 18 2009 35 47 18 2010 33 48 19 2011 30 50 20 2012 29 50 20 2013 28 51 21

Quarterly and annual data can be found in QEP tables 2.4.2 (Std elec) and 2.4.3 (Economy 7)

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The Great Energy Rip Off

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