To be worried about the number of people who think a ‘fixed’ energy tariff means the monthly price will always be the same - regardless of usage

[Butterflyfluff]

I know there are loads of threads about energy costs at the moment but I have noticed there are quite a number of people who think a fixed price tariff operates in the same way as say a monthly Netflix subscription.

With Netflix, you pay the same each month regardless of how much you watch.

With energy it is only the unit price you are fixing - your monthly bill will vary dependent on usage.

The terms ‘fix’ and ‘cap’ are causing a lot of confusion.

Think of it like bus tickets

The imaginary travel regulator has decided the maximum cost of a local bus journey is £1. They've decided that instead of talking about a single bus journey they'll work out how many trips the average family takes over a year and express it as an annual cost so that people understand how much extra it might cost over the year when the maximum cost changes. They decide that the average family of 2.4 children will use 537 bus journeys a year so they express the cap as £537. But it's not £537, it's £1 per ticket.

If you're a single person who only uses a bus occasionally you'll pay less

If you're a family of 6 who all take the bus to school/work daily you'll spend a lot more.

The energy cap total is just a bit more complicated because it has two types of tickets (the cost per kWh for gas and electricity) plus a daily standing charge for each, so those 4 bits have to be factored in.

Do you have smart meters? Because if not this might well bite you in the future if they're working on estimates.

If you're on smart meters or giving regular readings then your most recent bill should have your annual usage in kWh on it.

Sorry, but that’s not helping.

The simple fact is -

You pay for the number of units you use, at either the fixed rate or your suppliers variable rate.

End of.

I think once the hefty bills start arriving, people will wake up especially when they have less disposable income for treats etc

If they ignore it, they will get into debt very quickly

Be interesting to see the number of subscribers to Sky, Netflix etc go down or stay the same

I despair about the lack of knowledge caused by poor education about basic financial matters
to me it’s far more important than learning a second language etc
I have done my best to educate own DC who are now adults but not everyone has family support and suffer as a result

I can try..
Ok think of it as petrol, I've made up the prices

The price cap is the cap per litre. So they can't charge any more than £1.50 per litre and they're saying the average amount of petrol used is £3000 per year which is why they're showing it as "price cap £xxxx". But the cap is on how much they can charge per litre, not how much you can use. So if you drive thousands and thousands of miles, you'll use loads above the average

The usage is up to you of course, if you drive more, you'll use more, drive less you'll use less. But because the cost per litre has gone up so much, it'll affect everyone

Some people are fixing their rate at £1.50 per litre rather than paying a variable rate of less, because it's predicted to go up again
So the variable you might pay £1.30 per litre now, but in January the cap could go up to £2 per litre. People are fixing at £1.50 and paying a bit more than variable for long term reassurance

The standing charge is like line rental, how much you pay for your phone whether or not you use it, and that's the same situation with the price cap

My £10 for Netflix is a drop in the ocean. Plus it's my entertainment so well worth it!

The way I think about gas and electricity is it's like a combination of a subscription fee (your standing charges) and a charge per unit.

An equivalent example might be Tesco's delivery saver - you pay a subscription fee which covers the delivery costs, but then you pay separately on top for each order that you do.

For gas and electricity the subscription fee - i.e. the cost of electricity and gas bring supplied to your house at all is capped.

The unit price (like £0.50 per kilo for potatoes or whatever) is also capped. But if you bought 100 kilos of potatoes, Tesco is going to charge you more than if you only buy 10kg. The same applies to electricity and gas.

Now where it differs is that Tesco don't have a system where they go: hmmm most households spend £300 a month on food so we'll charge you that as a starting point but then at the end of the year we'll add up everything you've spent and sort out the differences then. That's essentially what your energy direct debit does.

So the cap is on the delivery fee (standing charge) and the utilities equivalent of the cost per kg. But if you use more than they expected, when they tot up what you've used you might owe them money.

OK. I know that what I pay each month does not mean unlimited usage for that price.
I have a smart meter so my bills are actual, not estimated.
My supplier adjusts my DD accordingly on a regular basis.

I don't need to know my precise usage to know that if I use less electricity it will in turn cost less.

No need to be rude - it was a possible explanation for people who don't understand the way the cap is expressed.

If you are on a smart meter that should limit the issues in terms of getting hugely behind because of underbilling. If they haven't already done so I'd expect a sharp revision upwards of your DD shortly though - quite possibly by more than the percentage change in the price cap.

It wouldn’t surprise me if they go up. People who used to do days out with the children or date nights at restaurants / cinemas / theatres might decide to stay home. If so, a monthly subscription for Netflix or one of the other subscription companies might be an inexpensive treat.

Obviously this wouldn’t be for people counting every penny but if someone is just about coping with paying £500 on energy, £10 or so on entertainment might seem reasonable.

😘

I've already budgeted (as best I can) for an expected increase.
Like, I'm not an amoeba, I understand the basics.

It's the numerical intricacies that flumoxe me.

As I understand it, 1 unit of electricity covers 1kw or 1000w for 1 hour.
So, if I turn my 3kw washing machine on for 1 hour, that uses 3kw of electricity and therefore 3 units of electricity.
If I switch my 10w lightbulb on, it would have to be on for 100 hours to reach 1kw and cost me 1 unit of electricity.
1kw of electricity will cost me no more than the price cap, if I am on SVR.
After this, I need to factor in my daily standing charge which is paid once per day.
Have I got that right?

I'm not good on usage/kw but yes that's right for the SVR and standing charges

I spent 30 mins explaining the price cap to my dad, he gets the calculations for kw appliances use so we do fine between us

That's perfectly correct - although your 3000 watt washing machine won't be running full power all the time.

There is a useful guide here
www.mumsnet.com/talk/_chat/4600620-the-true-cost-of-running-electrical-devices-a-useful-guide?

A good example is a 10 KW shower. On full power, that's 10 units an hour - so £5.20 an hour. You can see how this can add up.

I describe power as speed and usage as distance.

So a high power machine runs fast but may not got very far - e.g. a 3000 watt kettle only runs for a few minutes - so not a high usage when it boils water

A low power machine e.g. a light - may not be very fast but it can go a long distance as it's on for a long time.

I think there are a lot of people who don't really understand power and energy usage as well. They have a lot of low power machines that are on most of the time - which can now start to add up in terms of energy usage.

I have been around my house and I know the power rating of all devices in the house we have. My 'background' power reading is 33 watts - that's basically gadgets that I don't want to turn off as they need to be on all the time

Price cap is basically the most someone can charge you for a kilo of carrots and a kilo of potatoes.

It's expressed as what the average household would spend on carrots and potatoes.

But some people may buy more or fewer of these vegetables.

Some people decided to fix a price with a supplier which is higher than the price cap - but guaranteed for a year or 2.

I can see a simple animation for this - so people can use this analogy.

(It is misleading for some people as they do just think it's the most they will pay, regardless of use)

I recently met someone who genuinely believed once their energy use had reached the price cap they would not be charged any more for the energy they used . I’m not even sure I was believed when I said this wasn’t the case .

My dsis thought the cap would apply even though she’d fixed at a higher rate. She thought she would pay the lesser of the two so it didn’t hurt to fix.

I can see why people are confused. I think it’s because they see it a bit like a mortgage fix, a set amount each month.

@TheNefariousOrange

ah well, at least you know now!!

a couple of questions though, if you don't mind answering them?!

were you aware of the 'price cap' before this year?

Either way, did you realise the more energy you use, the more you pay, or did you think your DD (if you pay by DD) was all you'd pay, no matter how much you use?

I'd never heard of the price cap before it hit the news this year. I knew that my dd wasn't my usage, because I have credit on my energy account but I just assumed I'd have to pay their quote with a new fixed.

This was my first ever time having a fixed contract come up for renewal as I never paid bills before my divorce. Exh always dealt with the money so I am sort of learning everything about money as I go along.

Averaged through the year, I spend about £60/month on energy for a two bed semi.

That depends entirely what you call the bare minimum, so it's totally subjective!

@Frenchtoastie

Spot on!!

what pKw & daily standing rates did you manage to fix? Who with?