GREAT ENERGY RIP OFF Robert Halfon MP PREFACE

I was outraged to hear from a constituent that his elderly mother had received a letter from the Co-op Energy Company stating that she was going to be charged 63 extra unless she switched to pay her gas and electric bills by direct debit. It is understandable that there is an extra administrative cost to not paying bills by direct debit, but 63 is excessive. Shockingly, upon investigation, I found that the majority of energy companies across the UK impose these extra charges, or instead discount bills substantially for those paying by direct debit. This is particularly the case for the Big Six. This is unfair, and hurts the low paid and vulnerable the most. However, some smaller companies charge their customers exactly the same regardless of how their customers pay their bills. All companies should attempt to follow this example, as it shows that it is even more unreasonable for some of these companies to charge such exorbitant amounts. INTRODUCTION The poorest and most vulnerable are routinely ripped off by energy companies when it comes to paying for the most essential of items, gas and electric. In the UK, 45% of people do not pay their electricity bills by Direct Debit.1 Those on lower incomes often prefer to manage their finances by paying for things by paying for things by cash, and some people do not even have access to bank accounts. In 2010, it was estimated that almost 1 million UK adults do not have a bank account, making it impossible for them to pay by Direct Debit.2 These people are sadly also most at risk of living in fuel poverty, and living in the least energy efficient houses.3 It is therefore unreasonable for energy companies to add such extortionate charges onto energy bills, targeting these people. Furthermore, even those who pay their bills on time, even if they do not pay by direct debit, subsidise those who do not, as companies often calculate these extra charges into what they charge everyone for not paying by direct debit.

FINDINGS:
Out of 32 energy companies surveyed: 17 energy companies charged more to customers who were not paying by Direct Debit DECC figures show that the average annual surcharges were 114 in total - 41 for electricity and 73 for gas4.

1 2

See Appendix 5 http://www.bbc.co.uk/news/10277151 3 http://www.savethechildren.org.uk/sites/default/files/docs/poverty_briefing_1.pdf 4 See Appendix 3

One company (Spark Energy) said that paying by another method could cost customers up to 390. 5 energy companies charge exactly their customers exactly the same regardless of how they pay, such as Good Energy, Green Energy UK, and Ecotricity. The majority of water companies do not charge their customers anything extra for not paying by direct debit, such as Bristol Water, Anglian Water, or Severn Trent Water, or charge a much smaller administration fee than energy companies, around 5 per year. BT charges their customers 24 a year for not paying by direct debit, to cover administration costs.

RECOMMENDATIONS: Put a limit on the discount or surcharge which a company can apply for using different payment methods.
Companies are charging up to 100 per year for the expense of sending and receiving quarterly bills. This is excessive. Many companies, such as Ecotricity, Good Energy, Green Energy UK, LoCO2 make no distinction based on payment method and many water companies charge nothing or less than 5 for using other payment methods. I would reccomend 24 per year (2 per month) as a reasonable limit to cover costs.

Create more transparency

Energy companies should make it clear to customers why they are being charged more for using a particular payment method. Many companies are including the cost of late payment and sending reminders in their justification for charging more for traditional payment methods. This is not fair on nondirect debit customers who always pay on time. These extra costs created by some customers should be paid for by late fees. In this way, the culprits are directly accountable and innocent people do not have to subsidise them.

Investigate further
There should be a government inquiry to look at why some companies are able to allow customers to pay by whichever method they prefer without incurring an extra cost. This would ensure that businesses are not hoodwinking vulnerable bill-payers, who might be unaware or unfamiliar with direct debit, into paying more than they have to. Companies who are clearly using non-direct debit customer to subsidise their other customers should be condemned.

APPENDIX Appendix 1: Charges or Discounts Offered by Water Companies Water Company Affinity Water Albion Water Discount or Credit 0 (Draw to win 500) 0 Source Contact

https://www.affinitywater.co.uk/direct-debit.aspx

Not responded Confirmed by email 9/1/2014

Albion Water does not offer a discount to those customers who choose to pay by direct debit.

Anglian Water

There is no difference in our tariffs based on payment method.

Confirmed by email 9/1/2014

Bristol Water

I confirm that we dont currently offer Direct Debit discounts to customers and conversely we dont charge more to those customers who choose not to pay by Direct Debit. https://www.cambridgewater.co.uk/customers/direct-debit http://www.sitesplus.co.uk/user_docs/274/File/Co de%20of%20practice%20household%20custome rs__amended%2025%20Apr%2010.pdf I can confirm that Dee Valley Water do not offer customers who choose to pay their bill by direct debit any rebate for doing so. http://www.dwrcymru.com/en/My-Account/I-wantto-pay-my-bill/Set-up-a-Direct-Debit.aspx

Confirmed by email 9/1/2014

Cambridge Water Cholderton and District Water* Dee Valley Water

3.00/year

n/a (Direct Debit not offered) 0/month

Confirmed by email 9/1/2014 Not responded

Dwr Cymru Welsh Water Essex and Suffolk Water Northern Ireland

3.50/year

https://www.eswater.co.uk/your-home/youraccount/Direct-Debit.aspx?

Confirmed by email

http://www.niwater.com/paying-your-bill/

Not responded

Water Northumbri an Water 7.00/year (3.50 for sewerage/3 .50 for water) 5/year http://www.nwl.co.uk/your-home/youraccount/Direct-Debit.aspx Not responded

Peel Water Networks Portsmouth Water Scottish Water

http://www.peel.co.uk/pwnl/domestic/payment

Not responded Not responded Not responded

http://www.portsmouthwater.co.uk/customer_servi ces/default.aspx?id=242 http://www2.scottishwater.co.uk/portal/page/portal /SCOTTISH_WATER_HOME/INTERNET_HOME PAGE/INTERNET_BUSINESS_HOME_PAGE_3/ INTERNET_BUSINESS_YOUR_ACCOUNT/INTE RNET_BUSINESS_3_DIRECT_DEBIT/DIRECT_ DEBIT_03_04.PDF http://www.sembcorpbw.co.uk/your-bill/ways-topay/online-billpay.aspx

Sembcorp Bournemout h Water Severn Trent Water

Not responded

Severn Trent Waters customers are able to pay by direct debit and online, these services are not discounted.

Confirmed by email 9/1/2014

South East Water

5/year

https://www.southeastwater.co.uk/youraccount/paying-your-bill/set-up-your-directdebit#.Us0trmRdWz5 http://www.south-staffswater.co.uk/your_home/payment_options.asp https://www.southwestwater.co.uk/index.cfm?artic leid=1364 http://www.southernwater.co.uk/at-home/your-billand-account/paying-your-bill/pay-by-direct-debit/ http://www.waterplc.com/pages/home/about-yourbill/faqs/#directdebitbenefits

Not responded

South Staffs Water South West Water Southern Water Sutton and East Surrey Water

Not responded Not responded Not responded Not responded

Thames Water United Utilities Wessex Water Yorkshire Water

http://www.thameswater.co.uk/youraccount/601.htm http://www.unitedutilities.com/other-ways-i-canpay.aspx http://www.wessexwater.co.uk/customers/twocol. aspx?id=216&linkidentifier=id&itemid=216 http://www.yorkshirewater.com/youraccount/making-a-payment/sign-up-for-directdebit/what-is-direct-debit.aspx

Not responded Not responded Not responded Not responded

5/year

Appendix 2: Charges or Discounts Charged by Energy Companies (Based on Ofgem average energy consumption: Gas - 16,500 kWh, Electricity - 3,300 kWh)

Utility Company

Discount (/mont h) 80 per annum (40 per fuel)

Source

Contact

Airtricity

I can confirm that the price reduction when paying by direct debit is 40 per fuel, per customer, per year.

Confirmed by email 9/1/14

Atlantic

80 per annum (40 per fuel) 10p more per day (Averag e 38) 73

I can confirm that the price reduction when paying by direct debit is 40 per fuel, per customer, per year.

Confirmed by email 9/1/14

Better Energy

confirmed by email

British Gas

If we take an average bill across all regions at average levels of consumption is 1,253. This becomes 1,180 with direct debit discount. Meaning a 73 discount (this figure 5

Confirmed by email 9/1/2014

remains the case across all regions).

Cooperative Energy Daligas

60/year 4.9%

60 per annum

Confirmed by Ramsay Dunning 7/1/2014

DD only

http://www.daligas.co.uk/paym ent https://www.ebico.org.uk/custo mer-care/payment-options Ecotricity offers just one tariff for electricity and gas, and all our customers are on the latest best price, regardless when they joined or their payment method. at current Ofgem typical consumption (3200kWh electricity, 13500kWh gas), an EDF Energy Direct Debit customer could save 74 per year including VAT compared to a customer paying by Credit. I can confirm that our customers who choose to pay by monthly Direct Debit, receive a discount of 35 per fuel, per annum. We are transparent on our website that customers can choose to pay via other methods, such as cheque or cash, for which we apply an 8 per month administrative charge.

On website

Ebico

Not responded

Ecotricity

Confirmed by email 9/1/2014

EDF

73

Confirmed by email 9/1/14

Eon

70 (35 per fuel)

Confirmed by email 9/1/2014

First Utility

96

Confirmed by email 9/1/14

Flow

DD Only

Good Energy

Good Energy currently offers the same prices and pricing structure for customers regardless of their payment method. This means that there are currently no discounts for payment by direct debit, for example. It also means that there are no surcharges applied to customers that wish to pay by other means such as sending a cheque in the post.

Confirmed by email 9/1/2014

Green Energy UK

We operate a simple tariff structure and do not differentiate between payment type. Whilst we understand the savings in administration, cost of working capital, and convenience of the Direct Debit method and encourage our customers to pay using Direct Debit we acknowledge that DD is not always the best method for some customers.

Confirmed by email 9/1/2014

Green Star Energy iSupply Energy

approx. 30/year n/a (Only offer direct debit) 0

Phone - 0800 012 4510

Not responded

http://www.isupplyenergy.co.uk /Products.aspx and confirmed by phone - 0330 2020298

Confirmed by phone

LoCO2

There is no difference in the cost between different payment types.

Confirmed by email 9/1/2014

M&S Energy

80 per annum (40 per fuel) 40.00 per annum for electricit y, 50.00 per annum for gas. DD Only

I can confirm that the price reduction when paying by direct debit is 40 per fuel, per customer, per year. We offer Direct Debit customers lower charges, 40.00 per annum for electricity and 50.00 per annum for gas, compared to customers paying via an alternative method.

Confirmed by email 9/1/14

Npower

Confirmed by email 9/1/2014

Ovo Energy

Confirmed by email 9/1/2014 Thank you for your enquiry. At Ovo we only offer Direct Debit as a method of payment to our customers and this is the case across both our tariffs; New Energy and Green Energy. Our customers pay for their energy a month in advance because we buy their energy in advance. This helps us keep prices down, as we can buy energy at the lowest possible price. It also helps our customers keep their account in credit so that they stay on top of their bills and dont fall into energy debt. We offer 3% Ovo Interest Reward on any credit our customers have in their account.

Power NI

26 per annum (quarterl y) 40 per

Monthly Direct Debit 4% discount up to a maximum of 40 per year Quarterly Direct Debit 2.5% discount up to a 8

Confirmed byemail 09/01/2014

annum (monthly ) Sainsbury' s Energy 73 average

maximum of 26 per year

Based upon your constituency office post code (CM20 2NQ), a Sainsburys Energy Standard tariff bill* is: 1,253 by Cash or Cheque 1,180 by Direct Debit This reflects a discount of 73 at average consumption (based on average consumption of 13,500 kWh for gas and 3,200 kWh for single rate electricity, rounded and including VAT.)

Confirmed by email 9/1/2014

Scottish Hydro

80 per annum (40 per fuel)

I can confirm that the price reduction when paying by direct debit is 40 per fuel, per customer, per year.

Confirmed by email 9/1/14

Scottish Power Southern Electric 80 per annum (40 per fuel) 390 per annum, (electricit y up to 227, gas up to 163) 80 per annum (40 per I can confirm that the price reduction when paying by direct debit is 40 per fuel, per 9 I can confirm that the price reduction when paying by direct debit is 40 per fuel, per customer, per year.

Have not responded

Confirmed by email 9/1/14

Spark Energy

Confirmed by email 10/1/2014

SSE

Confirmed by email 9/1/14

fuel) SWALEC 80 per annum (40 per fuel)

customer, per year. I can confirm that the price reduction when paying by direct debit is 40 per fuel, per customer, per year. Confirmed by email 9/1/14

Utilita Utility Warehouse Woodland Trust Energy DD ONLY For Woodland Trust customers, all accounts are set up with a monthly direct debit. There is not an option for quarterly credit. We offer a flexible direct debit, in which each months payment varies dependant on usage. Otherwise it is a fixed monthly direct debit. There are no discounts or special offers for either. We believe it is important to treat all our customers fairly. We are predominantly an online company, which is the main reason we don't offer quarterly credit. Zog Energy DD ONLY Zog Energy is a new entrant to the market with an aim to keep things simple for customers. We only offer two tariffs both of these have fixed prices paid by monthly direct debit. We don't offer quarterly credit payment as an option.

Have not responded Have not responded

Confirmed by email 8/1/2014

Confirmed by email 9/1/2014 Confirmed by email 9/1/2014

BT

24 per annum

BTs PPF is 2 a month, calculated on costs incurred 10

Confirmed by email 9/1/2014

as a direct result of customers paying by non-automated methods such as payment handling, card fees and customer service. Unlike other companies, BT provides a simple, low-cost telephone service for those on low incomes, BT Basic. BT Basic customers do not pay this fee.

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Appendix 3: Email from a House of Commons Library Specialist

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Appendix 4: Email from Energy Providers a) Email chain with Spark Energy
Dear Mr Halfon Thank you for your email last night. From October 2013 energy providers are able to provide four core tariffs which are based on meter type and payment type these are new requirements from Ofgems Retail Market Review which is designed to make things simpler, clearer and fairer for the consumer. In-line with that, and similar to other energy companies we have our four core tariffs as follows: Direct Debit Saver (pay monthly by Direct Debit) Monthly Premium (pay by card / cash on receipt of bill each month) Direct Debit Advance (monthly Direct Debit with an upfront payment) PAYG Saver (pay using top up key in a prepayment meter)

Our most economical tariff is Direct Debit Advance which involves a one month advance payment (we can buy energy cheaper and pass savings onto customer). At the moment this is the most economical tariff in the UK. Second most economical is Direct Debit Saver which involves a regular monthly Direct Debit. The customer receives a quarterly statement to allow them, and us, to keep track of their payments vs usage. We review Direct Debit payments every six months based on energy usage. Our most expensive tariff is Monthly Premium which involves sending out monthly bills to customers which they pay by card / cash. These are typically more expensive due to the admin costs associated and traditionally higher levels of bad debt throughout the industry. Annual costs depend on geography and customer usage, but a comparison can be made on our website or on the UKs leading switching sites like uSwitch or moneysupermarket. You asked about quarterly credits we dont have a tariff fitting that description. The standing charges and unit rates (that make up the tariff) vary depending on meter type and payment type. We dont have any tie-ins or exit penalties, so if customer wants to choose another supplier, or another tariff in our range they can do so at any time. Today, Spark provide energy to over 80,000 customers throughout the UK and are now one of the top 5 employers in the Scottish Borders. We have over 200 staff who share the same aim of being number one for customer service in the energy industry. I hope this helps, but if you require any further information please let me know. Best Regards

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Scott -----------Dear Scott, Thank you for your response which was very helpful. However, we also need a figure for the effective discount which you provide for consumers paying by direct debit. From your website, the average difference between Direct Debit Saver (15.0p/kWh for electricity and 4.392p/kWh for gas) and Monthly Premium (21.9p/kWh for electricity and 5.381p/kWh for gas) appears to be 6.9p/kWh for electricity and 0.989p/kWh. Following Ofgem's official figures on average household usage (Gas - 16,500 kWh, Electricity - 3,300 kWh) this would amount to a saving of 390 per year. Does this figure fairly represent your policy on direct debit? I need a response in the next hour as I will be making my report public today. Very best wishes, Robert ---------Hi Robert Yes, that's correct. If a customer chooses to pay by Direct Debit, depending on usage and where they are in the country, they could save up to 390 or thereabouts. They can save more by paying Direct Debit with an advance payment as you can see on the web.

b) Email Chain with SSE

Dear Mr Halfon, Many thanks for your email. As a result of Ofgem's Retail Market Review, suppliers are no longer be able to offer certain types of discounts, including prompt payment discounts, loyalty-based discounts, and percentage-based discounts. However, we are still able to offer discounts to those customers who elect to pay by Direct Debit and receive paperless bills. These reduced prices reflect the lower cost to SSE resulting from customers making those choices. In any structural reform, there will always be some customers who benefit more than others. Despite this, on balance we think that this approach is generally the right thing to do for customers and should lead to increased engagement and competition in the market - which ultimately has to be a good thing for customers.

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We would be very happy to meet to discuss this in more detail. In addition, we will shortly come back to you with figures on the price differential for those customers paying by direct debit. In the meantime, if you have any further questions please feel free to get in touch. Best wishes, Sophie ---------Dear Mr Halfon, Following on from my email below, I can confirm that the price reduction when paying by direct debit is 40 per fuel, per customer, per year. Customers can save an additional 6 per year per fuel for going paperless. This figure comes off the standing charge and reflects the reduced costs incurred by SSE as a result of the customer making these choices. If you have any further questions, please feel free to get in touch. Best wishes, Sophie

C) Email chain with Eon Energy:

Dear Mr Halfon Thank you for your questions regarding the differences between paying utility bills by direct debit and quarterly credit. Im sorry that no-one called you back following your call yesterday. There have been some recent regulatory changes which came into effect this month, as part of Ofgems Retail Market Review (RMR) and all our tariffs comply with these changes. I can confirm that our customers who choose to pay by monthly Direct Debit, receive a discount of 35 per fuel, per annum. As part of our licence conditions we have to ensure all our payment methods are cost-reflective i.e. they must reflect the cost to the company for administering the payment. Direct debit costs less to administer than quarterly credit due to, for example, lower bad debt and account servicing costs. This discount applies to all of our four tariffs. Customers who chose to pay on receipt of their bill each quarter receive no discount for this way of paying. Prior to RMR suppliers were able to offer a prompt payment discount.

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Our customers can receive additional discounts for having both fuels with E.ON of 20. There is also a discount for paperless billing at 5 per fuel. We would encourage our customers to call us to discuss their payment method, to ensure they understand the options and discounts available. If you have any further questions please give me a call.

D) Statement from First Utility:

We are committed to offering our customers low-price energy deals and pledged not to raise our prices through to the end of this winter while the Big Six all made increases. We felt this was the right thing to do to give our customers the peace of mind that bills won't go up while energy usage is at its highest at the coldest time of year. We offer three simple tariffs protected by a price promise to always be cheaper than the Big Six standard tariffs. All our tariffs are priced as payment by monthly direct debit which is how the vast majority of customers prefer to pay. We are transparent on our website that customers can choose to pay via other methods, such as cheque or cash, for which we apply an 8 per month administrative charge.

Appendix 5: Figures from House of Commons Library showing percentage of people who use each payment method for electricity Variation of payment methods for electricity (%)

2007 2008 2009 2010 2011 2012 2013

Credit 39 38 36 33 31 30 29

Standard electricity (UK) Direct Debit Pre-payment 47 14 49 14 50 14 52 15 53 15 54 16 55 16 Economy 7 electricity (UK) Direct Debit Pre-payment 45 17 46 18 47 18 48 19 50 20 50 20 51 21

2007 2008 2009 2010 2011 2012 2013

Credit 38 37 35 33 30 29 28

Quarterly and annual data can be found in QEP tables 2.4.2 (Std elec) and 2.4.3 (Economy 7)

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