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Why the price of your fixed energy deal isn't as fixed as you think
Understand your direct debit, and the difference between fixed and variable gas and electricity tariffs
Picture the scene: you switched energy supplier to a brand new cheap fixed deal. The monthly payments stated were much lower than you were paying before. But a few months later your new energy firm tells you that your payments are increasing and you panic: didn't you sign up to a fixed deal?
If this sounds familiar, you're far from alone. We've had several complaints from members in the past few months, as well as seen many reports online.
Some customers have reported that their direct debit has been increased by a third or more. A few even told us about 50% payment increases, leaving them out of pocket and frustrated.
Read on to find out why this happens, how fixed deals work and how to avoid it happening to you.
When you choose a fixed deal, it's the rates which are fixed, not your total bill.
Energy tariffs are usually made up of:
Standing charge: a set amount you pay daily, regardless of how much gas or electricity you use.
Unit rate: the price per 'unit' of gas and electricity you use.
For the length of your fixed deal, the standing charge and unit rate are set. They won't change, even if your energy firm announces a price rise.
But your total bill depends on how much gas and electricity you use. Use more energy (ie more units) and you'll have to pay more; use fewer units and you'll pay less.
Direct debits: how they work
Most customers (more than 50%) pay their energy bills by direct debit. This is usually the cheapest way to pay (many companies charge extra if you pay by cash, cheque or have a prepayment meter).
If your direct debit is fixed, this means that your energy firm will take an equal payment each month of the year.
You don't use the same amount of gas and electricity in each month, though - you'll use much more gas in winter when you have the heating on, for example. The idea is to balance your payments out across the year so that you don't face a huge bill at the end of the winter.
In summer you will pay for more gas and electricity than you use. It's usual to build up a credit balance on your account in summer.
In winter, you'll use up this credit balance because you'll be pay for less gas and electricity than you're actually using.
This means it can be tricky to know exactly how much energy you're using and to help you know whether you're paying the right amount.
Why are my energy bills increasing on a fixed deal?
Customers on fixed deals, paying by fixed direct debit, can be told by their energy supplier that their payments are increasing.
If so, it's your direct debit payments that are increasing, not the price of your deal (ie the standing charge and unit rate, as explained above).
This will happen because you have used, or your energy company predicts you'll use, more gas and electricity than it predicted when it set your direct debit payments at the start of your contract. Suppliers review customers' direct debit payments at least once a year.
Your original direct debit was calculated based on estimated, rather than actual, usage.
You have used more (or less) gas and electricity than expected.
Your payments could have been based on estimates if you:
Moved into a new home so it was difficult to predict your energy use.
Did not tell your new supplier how much gas and electricity you use each year when you switched to it.
Have not sent your energy firm meter readings for a while.
Your smart meter has lost its smart functionality and isn't sending automatic meter readings.
In this case, changing the direct debit is effectively correcting the estimation made originally.
Even if your original direct debit was set correctly, it may need to change if you've used more or less energy than was factored into the calculations when setting your payments.
Your energy use might change if the number of people in your home, or how often they are at home, changes. Or if you have made major changes to your home or the appliances in it.
How to protect yourself against direct debit increases
When you switch energy firm, there are steps you can take to make sure your direct debit is set as accurately as possible. Once you're signed up to a deal, there are still ways to keep your bills in check and reduce the chance of your direct debit increasing.
When you switch, make sure that you use your annual usage figures (in kWh) to get any quotes or apply to switch supplier. Without these, your quotes and initial direct debit payments, will be based on estimates. Companies can try to base these on people and homes like yours, but they are unlikely to be as accurate as if you give your exact figures.
Once you're a customer, take these steps to keep your direct debit in check:
Take steps to cut your energy use, such as by only heating rooms you use, investing in heating controls and plugging draughty gaps. See 10 ways to save money on energy.
Challenge a direct debit increase if you think it's too much. Ask your supplier to tell you how it calculated the increase and, if it seems excessive, ask for it to be reduced again.
Keep an eye on your credit balance (check your bills and online account). If you've built up credit at the end of winter, ask your supplier for a refund. Some will refund excess credit automatically when they review your direct debit.
