COMMENT - DAVID KERR – 14 SEPTEMBER 2013 - Gas and electricity used to be things nobody really cared about. The reason was simple – you bought your electricity from the ESB and your gas from Bord Gais. You paid your bill every two months and pretty much forgot about it.
When the Commission for Energy Regulation (CER) began its process of energy market deregulation it did so with the firm intent of providing customers with access to competitive tariffs. This is based on trusting that market forces will apply and competition will deliver customer value.
Has the increased competition worked to control prices? There are now four domestic gas suppliers and five domestic electricity suppliers (of which two are exclusively pay-as-you-go suppliers).
Every one of the electricity suppliers sets its own standard price and offers discounts against this price to entice you to sign up. Of the four natural gas suppliers, three set their 'standard' price and offer discounts, while Bord Gais Energy must seek CER approval to change its standard price, and cannot offer customer discounts, making it the most expensive supplier of natural gas.
In September 2011, the average household could expect to pay €990 a year for electricity and €727 for natural gas. Today, the same customer can expect to pay €1,179 for electricity (an increase of 20pc) and €961 for gas (an increase of 35pc). And that's before the 2pc price increase we will see from October 1 on our gas bills.
Competition alone doesn't appear to have protected customers from price increases.
Therefore, it is useful to review how tariff discounts are provided. Discounted tariffs reflect the cost to administer a customer's account with the supplier. The cheaper that cost is to the supplier, the higher the level of discounts offered to the customer. In general, discounts are offered for two key areas: the billing method and payment method. If a customer pays by direct debit and is billed by email, they are offered the highest discounts. However, not all customers are equal – new customers are generally offered the best discounts to entice them to switch from their existing supplier.
Contract duration is not a factor in the discount being offered.
According to the regulator's most recent survey, most customers simply don't know precisely how much they are paying for their energy costs. Less than one in four people is able to estimate how much their unit rates and standing charges cost them with any degree of accuracy. Websites such as bonkers.ie help consumers cut through the clutter.
Price awareness is reflected in the number of customers who switch their tariff. In early 2009, the year of Bord Gais Energy's 'Big Switch' campaign, the number of people who changed electricity supplier peaked at just over 45,000 in a month. Today, around 25,000 switch electricity supplier per month – only one in six per year.
For natural gas, it's a similar picture, with around 10,000 per month changing gas supplier – again around one in six gas customers per year. The number of customers switching is in decline, rather than increasing.
Discounts are offered by all suppliers, which customers can avail of, but five out of six customers pay more than they need to.
Often customers are not aware that the discounted tariffs they sign up to expire – in most cases after a year. After the discounts expire, the customer is left on the supplier's standard tariff – their most expensive one. If you know your price is going up tomorrow unless you take action today, are you more likely to do something? You will probably take the five minutes to make sure you don't spend more than you need to.
Customers simply don't believe that prices in a deregulated market are better than if the regulator set the prices. This perception is the crux of the problem, because it is only a perception. The proof of this lies in the existing regulation of natural gas prices and the availability of discounts of up to 15pc, which customers can avail of by switching supplier. Competition works, and the value to the customer can be significant.
l Discounts automatically expire after a year (in most cases) putting you on the most expensive 'standard' rates.
l The biggest discounts are given where the customer agrees to online billing and paying by direct debit.
l It takes about five to 10 minutes to compare and switch energy suppliers so a little effort is required to get the best prices, but the savings are significant.
l It's the same gas, the same electricity – just a smaller bill.
Customers should be informed that discounts expire and that standard tariffs are the most expensive. Tariffs might seem complicated but aren't if you use a regulator-accredited service such as bonkers.ie.
Education on the state of the domestic energy market needs to be addressed. Awareness of the role of the regulator in pricing and tariff- discount expiry are two key factors that see Irish households conservatively paying €300m per year more on our electricity and gas bills than we need to.
David Kerr is managing director of price comparison and switching service Bonkers.ie.