Energy costs: update

Some Scottish Power customers have contacted us to say that it's low users who are being penalised the most. That's because the company does something known as "frontloading". It's raising the cost of the first 225 units of electricity that you use by nearly 30 per cent. But the increase for units you use after that is hardly going up at all. Which mean that the less electricity you use, the bigger the percentage rise in your bill.

It's similar for some of those who get their gas from Eon. On their Go Green tariff they're being hit with a whacking 31% increase for the first 2680 units. But the rise for units used after that is only 9%. But the majority of E.On's customers - those standard tariffs - are not affected.

For anyone wanting help or advice with their bills, they can contact the Home Heat Helpline on 0800 33 66 99.

Energy UK, who represent the big energy companies, have told us: "The lines were busy after hundreds of you called the Home Heat Helpline after the show last week. If you're calling them tonight and you can't get through, don't worry, just leave your number and you will get a call back. This industry Helpline is particularly aimed at providing extra help for people on low incomes, the elderly and other vulnerable customers."

For more information on energy prices, and the company responses from our previous report please visit [please insert link if we can to last week's web report].

In response to the information above, a ScottishPower spokesman said:

"As part of our recent price announcement the fixed cost element of our customer's bills increased. This is a result of ongoing  increases in the cost that we pay transportation companies".  

E.ON have told us:

During this time of rising energy prices, at E.ON, we know just how important it is for you, our customers, to understand what makes up your energy bill and what you can do to control your energy use, and we welcome the help Watchdog can give to explaining this to our customers. That is also why we're committed to working with the industry regulator, Ofgem and consumer groups, to improve confidence in the sector and ensure we build greater levels of trust.

Rising prices and the other costs on your bill

As shown by industry regulator Ofgem 49% of a domestic dual fuel bill is the cost of wholesale energy1. Ofgem also stated these wholesale prices have gone up by 30% since last winter2.

The wholesale cost is the price we pay for the electricity and gas we supply to you. Therefore the price we need to charge our customers for energy is largely governed by the world market prices we have had to pay to generate it, mainly the cost of gas. These prices are highly variable, as shown by the peaks in summer 2008, we therefore buy energy over a rolling period, typically about three years. This means we don't reflect every temporary peak or trough but aim to provide as steady a price level as possible.

For example, in 2008, wholesale prices shot up but then quickly fell down again.
The wholesale market is often volatile, but this year there has been a clear upward trend, made worse by unforeseen events in Japan and the Arab World.

However, wholesale prices are not the whole story. At the same time as these rising wholesale costs, network companies, who provide the infrastructure that gets the energy to your home, are having to invest more to replace old assets. These costs make up about 21% of your bill. The costs of energy company's environmental and social obligations have also risen. These are the government schemes that are funded through energy bills - the Warm Homes Discount, the CERT and CESP energy efficiency schemes, the Feed in Tariff and the Renewables Obligation. Finally there's VAT, other costs such as maintaining the meter and our operational costs which are the facilities and expertise that enable us to service your account and provide help when you need it.

Our profit

We have been clear about how much money we make from supplying electricity and gas through publishing our statutory accounts, but recently have also provided additional information to Ofgem each year called the E.ON UK plc Group Consolidated Segmental Report. This set of accounts is made public and these figures are also placed on our website http://eon-uk.com/about/annual_reports.aspx. These show that the energy market in this country is very competitive and that our profits from selling electricity and gas to you are less than often supposed. For example, looking at the part of our business that provides energy to our domestic customers, for every £1,000 our domestic customers paid us in 2010 for their electricity and gas, we made £5. To find out more visit: http://www.youtube.com/talkingenergy#p/u/1/RtevPu1n4iQ.

What are we doing to help our vulnerable customers?

With concerns over increases in prices we have a range of ways to tackle fuel poverty and we're committed to helping our most vulnerable customers through our social programme. This includes our WarmAssist tariff, our CaringEnergy Fund and Helpline and our Priority Services Register. Through our voluntary social spend over the last three years we committed to spend £59 million.

How we can help bring your bill down?

There are plenty of factors here that you can't control. But there is one you might well be able to control - the amount of energy you use. Improving the way you use energy will make sure the energy you pay for is used in heating and lighting your home, and is not wasted through un-insulated walls and roof. And here we can offer our customers some practical help and advice.

Insulate: without insulation, you can lose 25% of your heat through the roof and 33% through the walls3; with it you could save up to £340 a year.

Moderate: because you can't see energy, you can't see it being wasted. That's why, in the last two years alone, we've given out 277,000 energy monitors, and software to enable our customers to track energy usage over time.

Why not join our Energy Fit scheme www.eonenergyfit.com and we'll also help you to create a personalised energy plan to reduce your consumption and save money.

Products and our two tier rates

We offer a range of products to reflect your varying needs, including fixed and capped deals, online products and a green offering, as well as our standard energy plan.
Your bills are calculated using two different pricing bands, primary and secondary. While the threshold at which you switch from primary to secondary prices depends on the tariff; fundamentally, lower energy users will have lower bills.

It is often argued that energy companies penalise low users by front loading tariffs - having higher primary than secondary rates. But there are costs incurred on your bill before any energy is used, these are called fixed costs and include things such as the cost of your meter and getting energy to your home, and we look to recover these costs through the initial energy units you use.

With regard to the standard product price change announced in August, we did not frontload, and spread the increase across both your primary and secondary rates. In some instances promotional products, such as SaveOnline will have seen higher than average percentage increases on their primary rate. However, even after the price increase these products still offer you good value and have primary and secondary rates which are balanced appropriately.

While energy wholesale costs are expected to carry on rising, we're committed to offering you competitive prices and innovative ways to help you save energy. Our aim is to build long term relationships with our customers, delivering value adding solutions to help you take control of your energy use.

Scottish Power statement:

As part of our recent price announcement the fixed cost element of our customer's bills increased. This is a result of ongoing increases in the cost that we pay transportation companies.

The average increase across all payments types for electricity is 70% - which equates to an increase of 80p per week on an average bill.