Over the last few days, Bord Gais has been tossed upon the great media barbeque and well and truly roasted.
Headlines screamed, pundits snarled and numbers like €300, €120, 30%, 25%, 10% and even 14% were thrown out there to emphasize the sheer shock and horror of it all.
Although the figures differ, the story is the same. Bord Gais is going to increase electricity prices in August and has asked to the energy regulator to let them increase gas prices in time for the winter when most gas is used.
By my figuring, if you’re with Bord Gais, your electricity is going to go back up to what it was when you were with the ESB and your gas prices will probably go up by about 25%. In cash terms, that’s about €120 more for electricity and about €180 more for gas per year on top of what you’re already paying. So it's gonna be an extra €25 a month out of your pocket to keep your family in heat and light…
The big picture
It’s a bad state of affairs, but not as bad as it looks. I’m going to have a bash at predicting what will happen in the coming months and most importantly, what you can do to keep your energy bills as low as possible.
Here’s the back-story. The energy suppliers have been playing a giant game of chicken for the last few months and the pressure to increase prices has been enormous. Wholesale energy prices really have been going through the roof since last year, and because of all the competition to get customers, Irish household energy prices haven’t changed much at all.
But price increases have been inevitable and somebody had to increase them first. That company knew they would get roasted by the press and hemorrhage customers as a result - so that’s why there was a game of chicken going on. Nobody wanted to be the first to hike prices.
The reason Bord Gais ended up as the sacrificial lamb (in my opinion) is because they are the only company that still has a regulated energy product. They can’t set their own gas prices - they have to get permission from the Commission for Energy Regulation. Getting permission can take up to six months and it’s a public process. The rest of the gang can (and do) change prices whenever they feel like it.*
So in order to increase gas prices in October, Bord Gais had to ask for permission now. The cat is then out of the bag, so they may as well increase electricity prices now too and be damned.
We don’t actually know how much Bord Gais will increase Electricity prices by, and we don’t know how much the regulator will let them increase gas prices by in October. But the consensus seems to be about 14% for electricity and about 25% for gas. It’s a lot and it’s going to hurt a lot of people.
So what’s going to happen with the rest of the suppliers?
Well this is the first time a company in Ireland has done this in a competitive environment, so to get an idea of what to expect, we’ll take a look at what usually happens in the UK. A big energy company succumbs to wholesale price pressure and increases prices (Scottish Power did so last month). They get boiled alive in the press, their customers switch like crazy and other suppliers gobble them up.
Then the rest of the suppliers digest the new prices, work out a bunch of complicated new tariffs of their own and also increase prices as well (British Gas increased prices last week – the rest will follow soon). All the suppliers then jostle about winning and losing customers off each other until the market settles and it becomes clear who the real cheapest supplier is. This process happens at least once a year.
Now that Bord Gais has pretty much shown its hand, it is very likely that we’ll see Airtricity and Flogas increase prices shortly after Bord Gais does. My reckoning is that ESB Electric Ireland will be last to increase prices. Why ESB last? Well, they just entered the market a few months ago with cheaper prices and had a bit of a kafuffle with the press over indebted customers. I’m pretty sure they don’t want to be press whipping boy, and the Brits have shown us that the last to increase prices generally takes the lightest thrashing because the story becomes tired. Also, their gas prices are quite expensive compared to other suppliers so they may not need the increase as badly.
So what can you do?
Ah, the big question. Part of the reason prices have remained low in Ireland for nearly two and a half years is that we customers are very willing and happy to switch providers for a better deal. In fact, we switch energy suppliers more than any other country on the planet. And it’s switching that drives energy suppliers to stay lean, keep their prices keen and try to keep you or win you back as a customer.
It’s pretty clear that Bord Gais is going to take a bit of a shock and lose lots of customers but at the moment we don’t know how much they are going to increase their electricity prices by and their gas prices will not go up until October at the earliest. Then there’s all the other suppliers to consider. They are sure to follow suit with increases of their own. We’ll put those prices on bonkers.ie as soon as we get them, but we don’t have any yet.
If you’re a Bord Gais customer, you can just switch when they increase prices. We’re lucky in Ireland because the process is very easy, only takes a few days and most of the deals out there do not require annual contracts or charge penalties for leaving early.** So, switch! And if your new company increases prices, there’s nothing to stop you from switching it again.
You could also wait until the dust settles, all the price rises are in and make your decision then, but you’ll probably pay more that you should for a little while by doing it this way.
One thing is almost certain though. If you do nothing you will pay more.
Sadly, the switch option is no longer open to everyone. If you have arrears with your current suppler of more than €250 it’s up to the discretion of your new supplier as to whether they take you as a customer. And it’s a sign of the times that literally hundreds of thousands of customers are in energy arrears of two months or more. And even more distressing is that price hikes are going to drive thousands more into arrears.
*For proof, just keep an eye on Airtricity’s tariff pages - they tweak and change prices practically non-stop. David blogged about this here
**Watch out for this messing. I’m fairly certain that when new prices and tariffs are all done in time for winter, there’ll be annual contracts and early quitting penalties galore. Airtricity have already done it, but none of the other suppliers have yet.
Update 14th July 2011 - Charlie Weston of the Irish Independent has received confirmation from Bord Gais that the August electricity price increase will be 12% and that they have requested permission from the Commission for Energy Regulation for an increase of 28% on domestic gas prices, which will likely be approved and take effect in October.