Friday, 13 April 2012

The fallacy of the best tariff


We are told that power companies will be forced to tell customers whether they are on thebest tariff and if they should change. Superficially this sounds good, Nick Clegg is on the consumer’s side. Except that it’s mostly useless rhetoric.  

My phone company used to do something similar, telling me at the end of the year how I could do better if I changed. But how does that help? The period of inefficient tariff has gone and the coming year may well not be the same. Life progresses and power needs and usage patterns change. People change routine, children are born into the household, start school, leave home. People change jobs, change working hours, retire, while winter may be mild one year and very cold the next. Each of these events will significantly affect the power use and hence the choice of best tariff for the household. All the scheme does is to ensure you are almost always on the wrong tariff. The one that would have been best last year!

To be in any way meaningful the scheme should force power companies to read the meter then charge at the lowest tariff for that past usage. 

But in any case it’s no more than window dressing and rearranging the deckchairs. Why? Because it does nothing to address the real problem and reduce the cost of the power, all it does is apportion that cost differently to individual households. The cost of power is set by power station costs, raw fuel costs and suchlike plus distribution. Add to that various taxes and the damnable ‘green levies’, the costs of the power companies, plus their profits as paid to shareholders and management bonus recipients.  That’s the cost of power. Messing with customer tariffs doesn’t change any of that.

Consider: If Peter is on a very efficient tariff he will be paying less per kilowatt than Paul who is on a very inefficient tariff. So Paul, along with all his mates also on expensive tariffs, realise this and they all move to a better tariff and they pay less for their power.  But hang on! The total amount of power still costs the same to produce and distribute. The Utility companies won’t be reducing their profits or bonuses to take up the loss. So costs and charges across the board must soon rise to compensate for the reduced income caused by more people on lower tariffs. Paul will not save quite as much as he expected and Peter will lose his advantage from his original clever choice because the companies will take the same overall total payment from their customers.

It’s not quite ‘robbing Peter to pay Paul’ because Peter was getting an unfairly good deal while Paul was unfairly being fleeced, but the principle is the same.  If all people get the best tariff then charges will be apportioned more fairly, which is perfectly reasonable, sensible and desirable and should help poorly served customers. But shuffling the costs around has no impact on the real cost of power or the cost to the country in economic terms of the money being taken from the rest of the economy.

The only way to really help consumers would be remove taxes and levies, allow the use of cheap power sources, like shale gas, and cap utility company profits and bonuses. Somehow I think they will continue to rearrange the deck chairs rather than do those things.

6 comments:

  1. Re "Peter & Paul" The same thing would apply if every householder installed solar panels (God forbid the thought...)

    I saw a remarkably honest explanation at this site:
    http://www.fitariffs.co.uk/FITs/principles/funding/

    The suppliers pass on the cost of the Feed-In Tariffs scheme to all their electricity customers.

    ... so the bottom line is that people who don't install renewable energy systems pay for those who do!

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  2. Yup Microdave. Essentially, using my example, you could say people fitting PV systems are paying an upfront fee to buy into a 'negative' cost tariff.

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  4. Ha! - the "best tariff" - for who? is the question...

    First off, in terms of buying any utility's product - "they" don't want you to know the real cost of the raw material and second the gubmint isn't likely ever to mess with a goose that lays prodigious tax golden eggs... Exposing the trick is not in the interest of the men with the game of "which of the three tin cups is the dried pea is under?"

    This whole "Tarrif Hell" is simple misdirection - and because all utilities are at it, following the innovation of the telephone companies, finding the truth is a real PITA. What exercises me is the steady flow of stories about the targeting of vulnerable types like pensioners - the data mining predators are developing marketing strategies to target easy marks.

    As to FiTs - it's true - you're paying for that smug arse down the road and the "council in disguise" housing associations to put £20,000 gestures on their roofs ....

    Stop all solar and wind FiTs dead, - stone cold = snip.

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  5. Nice article, thanks for the information.

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