Q&A: Energy bill manoeuvres
- 2 December 2013
- From the section Business
The government has announced plans to change the make-up of energy bills to limit the pain of rising prices for consumers.
However, Labour - which has promised a 20-month price freeze if it wins the next election - says that the plan is a "smoke and mirrors" deal with the energy companies.
So what do the proposals mean for your energy costs?
Isn't it costing me more to heat my home this winter?
Yes, and it most likely still will.
All of the major energy companies, except E.On, have announced price rises for this winter. Energy prices are going up much more than the rise in the general cost of living, prompting anger from customers.
Labour leader Ed Miliband has claimed the market is broken and has pledged a price freeze, making the issue an election battleground.
However, the energy firms blamed the rising wholesale costs they face, as well as levies charged by the government, for the rising prices.
Now, I've heard a lot about these green levies, haven't I?
Yes, the Prime Minister promised to "roll back" some of these levies, in a bid to ease the pain of price increases for customers.
Now, the government has published these proposals. Consequently, it says, the average household will see about £50 come off their annual bill.
Great, £50 off my bill is good news isn't it?
Remember, this is a £50 reduction, following bigger price rises in most cases.
For example, a British Gas customer has just seen their average annual dual-fuel bill go up by £123. A £53 cut in January will still mean a £70 rise for the winter.
So, it is not as bad as it could have been. How is this happening?
The government is making changes to three obligations that the energy companies face, believing the resulting savings will be passed on to customers.
Firstly, the target date for insulating the homes of the elderly and vulnerable - known as the Energy Company Obligation (ECO) - has been extended by two years. So the homes will still be insulated, but not as quickly. Other elements of ECO have also been adjusted to save money, such as the type of insulation used.
Secondly, the Warm Homes Discount, which offers rebates to the vulnerable, will come from the Treasury's coffers, rather than being funded by energy bills. The government says this money will be found by tackling tax avoidance.
Thirdly, there has been some negotiation over the cost of transmitting electricity.
So, these lower costs for energy firms will be passed on to customers?
Yes, all of the big six say they will pass them on - hence the £50 reduction in the average bill.
Changes to ECO counts for about £30 to £35 of this, the Warm Homes Discount change will means a £12 rebate for all customers for each of the next two years, and there will be a one-off £5 savings owing to electricity delivery changes.
But the question is, when?
There are different announcements from different companies. British Gas says it will cut bills on 1 January, but it is the only company to give a firm date.
SSE says it will do it by the end of March, which could mean higher prices for the depth of the winter.
EDF says it has already factored in the cut when it announced a much smaller price rise than its rivals.
The remainder have not said yet when the cut will come.
I've got a fixed tariff, so will I see the benefit?
Everyone will get the £12 rebate, but the rest of the cut depends on your supplier.
Some argue that, with a fixed tariff, you did not get the pain of the price rises, so you shouldn't get the benefit of the price falls.
But then, some say that it should be passed on to all because the fundamentals of the bill have changed.
So far, British Gas and Npower have said their fixed tariff customers will benefit from the cut. EDF and Scottish Power fixed tariff customers will not benefit. E.On and SSE have yet to decide.
I am a customer of a smaller energy company. Will I still get a rebate?
Roughly 810,000 customers use smaller energy companies like Ovo, Ecotricity or Co-op. Companies with fewer than 250,000 customer accounts do not pay the ECO element of the bill levies.
Hence, customers will not get a rebate for the ECO part of the bill, but will benefit from the Warm Homes Discount rebate.
They will therefore get an average rebate of £17 in 2014, and £12 in 2015.