October energy price increases are becoming an unpleasant annual tradition. For the second year in a row, every supplier has increased prices and almost every household in Ireland will see gas and electricity costs go up - just in time for the winter.
Irish energy companies are bizarre creatures. They have a herd mentality - but kind-of in reverse. When they all want to do something, the most vulnerable creature is sent forward first. The rest watch from a safe distance as it gets skewered, and then they all quietly tread the same path. There might still be a little unpleasantness along the way, but with the first one taking the big hits, it shouldn't be too bad for the rest…
Bord Gais is that creature. They can’t set their own gas prices, so they have to publicly apply to the regulator when they want an increase. When they apply, they get pounded by the press. The rest of the suppliers hunker down and keep schtum. When the regulator grants a price increase, Bord Gais gets another beating. The other suppliers hang back and wait for the heat to die down… and then hike their own prices by the same amount.
It’s happened two years running now. On October 1st 2011, Bord Gais increased gas prices by 22%. The other three gas suppliers did exactly the same thing. This year Bord Gais increased prices by 8.5%. All other suppliers did pretty much the same again. And it was Bord Gais that filled most of the column inches and the airwave chatter.
It may have been bad press for the suppliers, but it was really bad news for punters. In just over a year, the cost of heating a home with natural gas has gone from €727 to €961 per annum. An increase of €234. That’s 32% or an extra €20 that households have to find every month.
And the unpleasantness doesn’t stop there. Although electricity prices aren’t regulated anymore, the herd mentality still applies. When gas prices go up, electricity prices go up too. And although suppliers don’t have a regulated increase to copy anymore, their hikes are all surprisingly (or unsurprisingly) similar. This October, it was about 6% across all suppliers, adding around €67 to annual bills.
But this time last year, all suppliers also increased electricity prices. So in just over a year, keeping the lights on has gone from €990 per annum to a staggering €1183. An increase of €193. Nearly 20% or an extra €16 per month.
So what’s the real impact of all this price shuffling? Well, an average household with gas and electricity on standard tariffs has gone from spending around €1717 per year in 2011 to €2144 in 2012. Overall, household energy costs have gone up by 25% in just a year. When you consider that incomes are still falling and taxes are sure to go up again in December, that’s practically Zimbabwean price inflation.
So where’s all this competition we’re supposed to be benefitting from then? Wouldn’t we have been better off staying with regulated suppliers and regulated energy prices? These are very valid questions, and they come up whenever there are energy price increases. Especially when all suppliers increase prices by the same amount – like 22% last year or 8.5% this year.
I can’t explain the seemingly collusive nature of the price hikes, but I do believe we are better off with competition in the energy market. Certainly the array of tariffs and prices out there can be bewildering, but it is possible to do better than regulated rates.
With or without competition, Bord Gais’s prices would have gone up by the same amount. They are regulated prices, and when the company applies for an increase, the reasons are scrutinised and the numbers are crunched by the Commission for Energy Regulation. And then they grant what they think is appropriate. So without competition, every household with natural gas would now be paying an average of €961 per year.
But we’re not all paying €961 per year for our gas. Some of us are paying much less than that. Despite uniform gas price increases, some households will see bills of around €837 per year for their gas. A difference of €125.
It’s the same story with electricity. The regulator doesn’t set a benchmark price anymore, but there’s still a big difference between standard plans and those discount ones we keep hearing about. Customers that have never changed from their old ESB standard rates (and that’s more than half of us) can expect to pay €1183 in the coming year for their electricity. Customers that look for a better deal can bring that down to around €1,052. Still a very hefty bill, but €130 less than the alternative.
Yes, it’s certainly a giant s*** sandwich and we’re all going to have to take a bite, but some of us will be taking bigger bites than others.