The high price of getting locked into fixed-rate bills

Fixed rates are set higher than variable tariffs but offer peace of mind because charges will not exceed a certain amount if energy prices are increasing.

However, analysts expect costs to fall in the spring, reflecting a sharp fall in wholesale gas and electricity prices, which means many fixed rate customers will be paying over the odds

until their deal expires.

This week Scottish Power cut the cost of its fixed rate gas tariff by 10 per cent, and more companies are expected to follow suit.

Will Marples, energy expert at uSwitch.com, said: “Scottish Power’s move gives the biggest hint we’ve had so far of the level of energy price cuts consumers can expect in early 2009.

“But we expect suppliers to take a cautious approach to bringing household energy prices down. They will be concerned that wholesale prices could move upwards again, eating into margins and

leaving them exposed.

“To mitigate this risk, they are likely to opt to introduce cuts in two stages, making an initial reduction of 10–15 per cent in the run-up to spring, followed by a second cut later on in

the year if wholesale prices remain low.”

However, a calculation by Moneysupermarket.com, the price comparison website, showed Scottish Power’s fixed rate PriceSure deal was only £54 a year dearer than the best variable energy deal

on the market.

If energy bills are cut by the 20-30 per cent predicted, those on the cheapest fixed tariff will still end up paying far more than they need to. British Gas and EDF offer the cheapest

variable tariffs depending on where you live, says Gareth Kloet at Confused.com.

“For the eastern, northern, Norweb and Yorkshire areas, the EDF Online version 6 tariff is the cheapest, at £1,109.47 a year, based on average consumption. In other areas, British Gas’s

WebSaver 1 tariff will be the most competitive at £1,058.80,” he said.

Last November, Alistair Darling ordered the energy regulator Ofgem to investigate the link between fuel bills and wholesale prices amid concerns that energy costs remained high.

Joe Malinowski from the energyshop.com, said: “The spread between wholesale energy prices and the average customer bill hit a record in November and started to narrow but it’s now wide

enough to shave around £150 off energy bills over 12 months.

"However, energy suppliers are going to sit back and survey the market for the next couple of months, especially with the crisis in Russia which threatens supplies to Europe.

“British Gas’s WebSaver 1 tariff not only guarantees an immediate saving but also further savings if British Gas cuts its standard prices by more than 5 per cent. Now is not the best time to

fix.”

A spokeswoman for the Energy Retail Association, which represents suppliers, said: “A number of energy companies have reported that they are hopeful of future price reductions. Neither the

ERA nor our members will be able to say with absolute certainty when this will happen.”

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