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Reduce Your Energy Costs
There are many energy consumers who do not understand the electricity market and how it can affect the price they pay. The electricity market is one of the most volatile markets in the world and average pricing can spike 250 fold over short periods during the summer months. Most consumers are protected by the Energy Retail Code against these price spikes however consumers above 160,000 kWh pa who are on supply contracts may not be.
Since deregulation of the electricity industry in Victoria in 2002, retail competition has grown significantly and Victoria is now one of the most competitive retail markets in the world. In 2006, over 500,000 consumers changed retailers which represented 22% of the market.
If you are looking into reducing your energy costs by changing retailers, below are some factors you may want to consider. If you are a large energy consumer (eg. body corporate common area supply), the offers you receive may be more complicated than that of a residential or small business consumer. It is important before entering into a contract that you understand the offer and if you have any doubts, ask the retailer to clarify.
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Rates offered
Electricity rates are usually quoted in $ or cents per kilowatt hour (kWh) and usually won’t include line losses or GST. Line losses can add another 3 - 4% to the price which may not often be disclosed until your first bill arrives.
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Service to property charge or supply charge
This is a fixed charge usually quoted as $ per day or $ per year charge. This is the charge for the distributor standing charges, metering charges and retail service fee.
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Other additional charges
Did the retailer quote you any other charges in addition to the energy rates and the service to property charge? If they do, remember to enquire the reasons for the additional charges.
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Billing cycle
Normally residential and small businesses are billed quarterly as distributors may only read meters every 3 months. However, there are retailers who may bill you on estimates every month and adjust the bill once the readings for your actual reads come through. If you want to be billed on actual reads only, make sure you inform your retailer.
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Term or length of contract
What is the term of the contract? Do you have to sign up for a 3 to 5 years contract to receive the energy offer? You can negotiate the term of the contract with your retailer if you do not wish to be locked in a contract for a period longer than what they have offered. This is important as breaking the contract before the term may incur a termination fee.
- Termination Fees
This is a very important component that many people tend to overlook when signing up a contract. As you are most likely to be entering into a contract with the retailer of your choice, some contracts may come with a termination fee if you do not stay with them till the end of the agreed term. Contract termination fees can vary and for larger businesses, can be costly. It’s important to read the fine print and understand these fees fully.
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Any other discounts or credits
Sometimes retailers may have a promotion such as a once-off rebate for direct debit, a once-off welcome credits, a yearly loyalty credits, prompt payment discount and other giveaways.
Prompt payment discounts are only good if you always pay your bill on time or pay through direct debit.
If you are a small user of electricity (average spend of less than $1000 per annum), then an offer of 10% of your rates may be less attractive than a $100 credit off your bill. Make sure you do a proper analysis to work the savings by switching retailers before you sign up.
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