Time to lock-in your energy and utility bill savings

Falling gas and electricity prices earlier in 2007 have made a significant difference to the bills many people are facing. Most suppliers (with the exception of EDF Energy, the main supplier to London) lowered their gas and electricity prices to their customers in the first half of this year.

Depending on where you live, and how you pay for your energy, you may well have seen your energy costs come down between 5% and 20% compared to their peak in January 2007. However, it's now been several months since the last price cut announcement by a leading supplier back in April and some, including British Gas have hinted at the possibility of price increases in the coming winter.

Why did the energy suppliers not cut deeper - after all, gas and electricity consumers still pay out an extraordinary average of £1,200 per year, even at the current rates. Part of the reason is clearly profit-related. Energy suppliers seek the maximum return for their shareholders, as any public company would. Falling wholesale prices for energy over last winter gave suppliers an unparalleled opportunity to line their pockets, yet still appear generous in the public eye by reducing prices to some degree.

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The other reason for the hesitation to cut deeper on behalf of the British energy consumer is that most sources of electricity (which includes gas) are natural commodities. Energy suppliers try to minimise their risk by buying their commodity supplies on a forward basis, which means that the gas and electricity you consume today could have been bought by your supplier as far back as last year. This will insure the supplier against shortages.

Suppliers, therefore, always keep an eye on the future cost of energy prices (particularly winter prices, when consumption is higher), and if these are high then they are far less likely to offer short term price cuts to their customers.

It is widely believed that the wholesale price of 'winter' gas may increase - if that happens you may be sure the cost will be passed on. As gas is used for about 40% of the country's electricity generation, the impact of higher prices for gas will spill over into higher electricity prices as well.

What should you do?

First of all, your bills will not decrease automatically anymore. For the foreseeable future, savings will be had from switching supplier and from reducing consumption. You should consider doing both now, taking advantage of what are still benign market conditions for households looking to reduce their energy bills.

New independent energy suppliers have entered the market again (for example Utilita), and their efforts have contributed to the huge amount of choice British energy consumers have. Suppliers are not keen to pass savings to their existing customer base, but they know that to attract a new customer from a rival supplier, they must compete on price, and offer at least 10% savings.

A number of large and small suppliers have therefore recently launched attractive new offers to get new customers - npower, for example, launched a new 'Sign Online' tariff that offers consumers the benefits of online account management at a very cost-competitive price. Scottish and Southern Group, the company behind the Southern Electric, Swalec and Scottish Hydro brands have brought out a new stripped-down internet tariff which improves greatly on their standard offering, while ScottishPower and British Gas currently have offers that could easily translate into savings of £160 or more for an average household.

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You have to look around for these deals and be prepared to switch energy supplier. Suppliers will not reduce your cost of gas and electricity without action from you. You need to lock in some savings with an attractive offer that reflects the low current cost of gas and electricity. And check that you remain on the best deal!

Remember that the average annual utility bill now stands at £1200 per household, and that the signs are there for bills to yet again go up further!

23 September 2007 © Moneyextra.com

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