My Monthly Payments Have Gone Up!

“…The supplier quoted me cheap payments to get me to sign –  then they hiked up the amount a few months later…”

One of the most common complaints we hear about from domestic energy consumers is regarding their monthly payments being increased unexpectedly.

An unplanned increase in costs often causes unexpected cashflow headaches, a distrust of the supplier and normally prompts people to start shopping around in the market for a different deal.

In practice, there are several things happening behind the scenes that lead to this occurring – it’s not (as seems to be the case) the supplier trying to craftily hike up their prices.

Firstly, it’s worth noting that we don’t purchase any other services in the same way as we do for our utilities.  The ‘monthly budget plan’ method stems from the principle that energy use and cost is seasonal (high in winter, low in summer).  The monthly budget method was designed to even out the extremes and have less dramatic swings in bill amounts from one month to the next.

It actually helps the suppliers to build up a cash reserve in the cheaper summer months, to help them manage the high procurement prices and high volatility that occurs during winter.

The ‘monthly payments’ process requires these components to be correct, to avoid these recalculation issues.

The usage you provide when getting a quote should be in line with your estimated annual consumption (which you’ll always find on a current bill).

 

The previous supplier should provide an ACTUAL change of supplier reading to your new supplier.

 

The previous supplier/Data Collectors should provide an Estimated Annual Consumption (EAC) to your new supplier.

 

Your new supplier should be able to receive ACTUAL meter readings each month, either from a smart meter, or from manual readings.

 

Your payments should be in line with the amounts requested.

 

Your usage should stay broadly unchanged from last year.

Any deviations from these will likely result in you getting the dreaded ‘We need to change your payment amount’ message.


Unless you are on a variable rate tariff, the supplier hasn’t changed the prices– they’ve changed your payment plan. 

The price per unit of energy is what you agreed in the contract.  All that has changed is that they believe you to be consuming more than they first estimated.

The purpose of this post is to explain how the process works from the perspective of the energy suppliers, what they’re doing, why they’re doing it and how you can best protect yourself from erratic billing.

Here’s the general sequence of events…

You sign-up with a new supplier.

The monthly payments you were quoted are captured in the system. These are as you were quoted (for now) as there is no information to the contrary.

Approximately a month later….

Your new supplier completes the registration process for your meter point.

Your former data collection agents (metering company) send details to the new supplier.

One of the records they provide is your Estimated Annual Consumption (EAC) / Annualised Advance (AA) or your Annual Quantity (AQ) for gas.
This is important, as it tells your new supplier what you are likely to consume (all things being equal) over the coming year.

Your new supplier will spread that annual total over a 12-month period using their own profiling models (e.g. assuming you will use a higher percentage of electricity in the winter months, etc.)

They then work out your expected annual costs based on your profiled forecast of usage plus your agreed tariff prices.

For budget payments, this cash total is divided by 12 months.

After the first quarter…

Your supplier will look at the actual readings coming in from your meter and how they compare to the profiled estimate for the same period and if they vary by any meaningful amount, they will scale up the estimated forecast for the year – and send you a request to pay more.

They’ll also look at how much you have paid versus what you would have paid on their latest estimated model – and will adjust to collect any underpayment.

As you can see, it’s a complicated process – with lots of scope for mistakes, misunderstandings and things that may cause your estimates to change.

But you can use this knowledge to your advantage to make sure you don’t get hit with direct debit adjustments when they’re not warranted.

CHECKLIST

[  ]  When you sign up for a new supplier, do NOT be swayed by the new monthly payments that are quoted. These are completely subjective and are not contractual.
The monthly payments you’re quoted when you sign up with a new supplier will be an extremely basic forecast based on either.

    • the estimated usage you provided when you asked for the quote, or
    • some typical average usage estimates based on the type/size of property.

[  ]  To make sure your estimated payments are as close to reality as possible, always use the Estimated Annual Consumption usage, which is printed on your bills, whenever you request a quote.

[  ]  When you sign up for a new tariff – make sure you understand who is responsible for reading your meter. If you have a 2nd generation SMART meter (SMETS2), your new supplier should be able to obtain readings remotely.  If you have an older SMART meter, or a non-SMART meter, someone will need to physically read the meter each month.
Beware – as this might be YOU!  Some ‘online’ tariffs explicitly state that you are responsible for supplying meter readings, and if you don’t, you’ll get billed on the suppliers estimate (which will almost always be wrong and will cause you a problem later down the line).

[  ]  Make sure you provide monthly meter readings if you don’t have a 2nd generation smart meter (SMETS2). This will avoid any estimated bills from the supplier which will later need corrective billing.  By doing this monthly, it stops estimates from drifting too far away from your actuals.

[  ]  If you receive a bill where the consumption advance is shown as an (E) Estimated – you can provide your supplier an actual reading and ask for that bill to be reissued. Don’t let your account drift along on estimated figures.  You’ll always get hit with a big ‘catch up’ bill later.

[  ]  Be aware that you will naturally consume more energy in the winter months. If you need to adjust your monthly payments up to avoid falling behind, remember to adjust them back down after winter, when you will be using less.

[  ]  Remember that the monthly Direct Debit amount is not a contractual term – you can set it to a reasonable level – but you’ll need to be mindful of falling into debt, as this can cause you problems later and could stop you from switching to another supplier.

Summary

Suppliers will take the usage you provide them with at face value but will change to using the Estimated Annual Consumption (EAC) from your previous supplier once this is available.  They then review this on a quarterly basis against what you’ve actually consumed and will scale your monthly payments up or down accordingly.

Remember that when you use price comparison sites to look at other deals, ALWAYS key in your estimated annual consumption figures from your latest bill.  This should minimise the frustrating ‘jump’ when your new supplier realises that you’re using a lot more energy than they initially thought and then they scale up your monthly payments!

If you have questions, or you’re looking at alternative tariffs or suppliers to save some money – remember to use your latest estimated annual consumption (EAC) figures and get in touch with us if you need any help!

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