9th September 2016
Octopus Energy calls for greater transparency in energy pricing
Greg Jackson, Founder
We believe that when choosing a supplier, customers should be aware of likely future pricing. At the moment, there’s a large difference between fixed deals and the Standard Variable Tariffs (SVTs) customers are charged when that deal ends. But customers aren’t told about this during the buying process.
Since most people don’t switch regularly, this affects customer outcomes in a big way and we believe that customers don’t get enough information to make the best choice of supplier.
Solving this problem would be really easy. Suppliers and comparison sites should show a multi-year cost, showing three and five year savings instead of just those of the first year. Another solution would be showing the fixed and SVT beside each other, so customers can make an informed choice about their long term costs.
Either of these approaches would empower both those customers who do switch every year and always want the very best deal, and also those of the millions of people who don’t switch every year and may end up on SVTs for a long time after – according to Ofgem, 66% of energy customers are still on SVTs.
See the price differences in the graph below.
All data is based on Ofgem medium typical domestic consumption values, for the Eastern region, one of the largest and most competitive.
Chris Roper, Octopus Energy’s writer, has written a blog exploring the practice in more detail. But if you’re pressed for time, we’ve created some FAQs below.
1. What’s the story?
Energy companies use “bait and switch” pricing to win customers. The Big 6 and some other suppliers have large gaps between the prices of their 1 year fixed tariffs (which they use to attract new customers) and their Standard Variable Tariffs (which customers end up on after the fixed period).
2. What do you mean “data compiled by Octopus Energy”?
Price comparison sites, and many supplier websites, show the fixed tariffs that customers sign up to, but it can be much harder to find the Standard Variable Tariffs. The picture is further clouded by exclusive deals, and so on. Octopus’s data expert has spent weeks compiling definitive data to assess what the lowest “teaser” rates for each supplier, alongside their SVTs, and then created graphs and tables which make it easy to understand this complex picture.
3. Does Octopus Energy use bait and switch pricing?
No. Our SVT and fixed prices are quite close. Currently, the gap is about £30 for an average household. We change our prices quite frequently in response to changing energy prices but the SVT is always fair. We do offer premium tariffs, but only when they genuinely offer good value to our customers – such as our Super Green Octopus tariff that includes 100% green electricity, or tariffs offered through our partners like acasa who make managing utilities in a house-sharing environment easier for everyone involved.
We’re totally focussed on being very very efficient, to enable us to keep costs as low as possible, and we’re not a listed company with quarterly profit expectations to meet.
4. On the graphs, Octopus Energy seems to have a £52 gap?
That's because the data we show on the graph is based on the lowest offer we've had in the last 6 months and our current SVT. Changing energy prices mean that both our fixed offer and SVT have changed – so the current gap is rather smaller – nearer £30.
Also, we don't say that there shouldn't be a difference (otherwise there'd be no such thing as a variable tariff!) but the massive differences from some suppliers really do need highlighting so that consumers can choose which supplier they switch to.
5. SVTs might move up and down – how do we know what the prices will be in a year?
We don’t. However, we have looked at the data over the last 2.5 years, and the SVTs from the Big 6 have come down, but the gap between their SVTs and their fixed prices has actually got wider and wider.
6. How did this story end up on the BBC?
We'd been compiling this data for internal use and showed it to the BBC’s Michael Robinson who'd happened to speak to us about a different story.
7. Shouldn’t people just switch around every year?
We’ve been exhorted to do that for 2 decades now – and still only perhaps 5% switch every year. Beyond that another 10-15% switch sometimes. By all means we should encourage people to check whether they’re getting good value for money, but we should also be honest that we know most people are not switching, and risk getting screwed.
Worse, for people who switch sometimes but not annually, these “squeeze and tease” can leave them worse off . That’s one reason so many people tell us they switched and still seemed to be paying too much. No wonder so many people don’t trust energy companies.
8. How accurate is the data?
The data has been painstakingly gathered, fact-checked with other suppliers where possible, and we aim to be clear on each table and graph how we gathered the data. If any inaccuracies are raised we'll quickly fix. Analyses like this always require subjective decisions - what is comparable? What date ranges? What regions? What type of customer? etc. We've tried to be as meaningful as possible by choosing one of the largest and most competitive regions (Eastern) rather than a national average, as no consumer chooses a national average. We've taken a long period (last 6 months) to capture as many offers as possible, because many suppliers dip in and out of the acquisition market, and we've used an average dual fuel household consumption figure. No analysis is perfect for every use but we think that this gives a good illustration of the issue as it will be experienced by typical consumers.
9. What does Octopus want to do about it?
Consumers need to be able to make informed choices when choosing a supplier. Therefore we believe that price comparison sites, energy suppliers, etc should have to show the long term price (the SVT) alongside the teaser price, or to show a “3 year blended” price.
Our writer, Chris Roper, writes more about Squeeze and Tease, with some very useful graphs and illustrations.
And you can get more detail and data here.
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