Capped Tariff Ending?

In July 2008, "cap now, cap now, cap now" was on everyone's lips as they rushed to avoid imminent 30%+ gas & electricity price hikes. Now those capped gas & electricity tariffs are ending, and many are due a shock as prices jump. This is a special capped energy switchers' guide to beat the traps.

• Step 1: Check when your cap ends
• Step 2: Compare ditch and switch
• Capped Switching Q&A
• Q. How do I pick a tariff?
• Q. Is it time to switch?
• Q. Was capping worth it?
• Q. Should I cap again?
• Q. What if I capped after Aug '08?
• Other Articles/Discuss

For switching from normal (not capped) tariffs read the main Cheap Gas & Elec plus cashback guide.

Why a special guide?

In early 2008, it was likely prices would rise, so on this site and elsewhere, capping became an oft suggested option for those who needed surety. By July 2008, here and on GMTV, radio 2 and elsewhere Martin was literally yelling that people who couldn't risk continued price hikes, should grab one of last three cheap capped tariffs, to lock in at pre-price rise rates.

Within days British Gas announced a 35% rise in gas and 9% rise in electricity prices and those last cheap caps ended. Luckily the message had spread in time, so much so, one price comparison service estimated it was the biggest switching week in its history, bigger than any previous month! Now some of those caps are ending, so this is what to do next.

Step 1. Check when your cap ends & if there's a penalty

All the different capped tariffs have various characteristics, and before you start the switching process it's important to know exactly what yours is, so grab the paperwork and find out...

• Get your cap’s precise name.
  
  Lots of suppliers offer caps with TINY name differences, so check the name and when you switched. For example E.ON has FIVE “Price Protection October 2009” tariffs, yet the price paid depends on exactly when you got it.

• The exit penalty.

  Many capped tariffs have penalty exit fees of £30-£75 if you leave early, so it's important to know if yours does. If it's not on your bill, call your supplier and ask.

• The end date and time your switch.

  It is crucial to know exactly when your cap ends. If it's already passed, then it's likely you're overpaying. If it's due to end soon then you need to time your switch. If it's not due for a while, you don't want to switch away from it unnecessarily and be hit by an exit penalty.

  Switching normally take 6 weeks to 3 months to happen, so it's usually okay to do a comparison and switch six weeks before it ends. One comparison service (see below) has a timed service to ensure you won't hit a penalty with a timed switch.
  
  However if there's no exit penalty on your tariff, then there's no harm doing a comparison to see if it's worth switching now, even if it's not due to end yet.

• Find out what the 'go to' tariff is

  It's worth calling up and double-checking with your energy provider what'll happen when your capped tariff ends. Usually you go to the provider's standard tariff (like a SVR on a mortgage) which is likely to be considerably more expensive.
  
  Yet check, it might offer you another fixed or capped tariff, see the should I cap again? section for whether that's a good idea.

Step 2: Compare, ditch & switch

Normally finding the cheapest energy supplier is simple.. just use a comparison service to tell you. Yet it is a problem if you're on a capped tariff, as comparisons are based on the prices of the cap, not the rate it'll go to when it ends - and that's what you really need. Plus there's a risk that switch early and you'll be hit by a penalty.

Having raised this issue, one comparison service agreed to follow the MSE logic and develop a system to help for those caps due to end.

For more information on switching in general, and tips to cut your bill, see the main Gas & Electricity guide.

Capped Switching Q&A

How do I work out which tariff to switch to?

A. There's a huge choice of tariffs out there to switch to here are some quick tips...

• Go green. More expensive but good for the environment, most comparison services let you sort by green tariffs.
  
  
• Online tariffs are cheaper. It's usually up to 10% cheaper to get an online tariff (it just means you're billed online - they haven't yet worked out how to get the energy down the web).
  
  
• Don't assume dual fuel is cheaper. Sometimes getting separate cheap gas & electricity suppliers wins, check both.

For more details on all of these see the picking the right tariff section of the main guide.

How you pay is also important, you will save up to 10% if you opt for monthly direct debit, though if you do always ensure you do a meter reading. See the more savings section of the main Cheap Gas & Elec guide for more.


Is now the right time to switch?

A. As your capped tariff is coming to an end, it's likely you'll be put on your provider's standard tariff, which is usually horribly expensive, so it's likely to be worth you switching anyway regardless of the bigger picture.

Usually the worst time is when one provider has shifted prices, as providers have a herd mentality and will usually follow. That isn't currently an issue though, the market is pretty stable and no big changes are expected. For full info see the time to switch section of the main Cheap Gas & Electricity guide.

Was capping worth it?

A. Well the main reason for capping was to get price surety - insurance against any future price rises. And of course that paid off.

Yet overall it's likely most people saved too - if they got one in time as suggested in July 2008. Then it was almost certain energy prices were going to rise imminently. At the time there were three cheap caps left, priced around 5-10% more than standard tariffs, and for those who wanted price surety to insure against any possible rises Martin was yelling "cap, cap, cap".

The expectation back then, based on wholesale prices was after those July rises, there'd be further rises in the January and this was a nightmare scenario capping perfectly prevented.

In the event, if you capped then, you got in just in time; soon afterwards, British Gas put gas prices up a MAMMOTH 35% and electricity up by 9%.

After that, much to the industry's (and others) surprise, recession hit, the oil price plummeted and wholesale energy prices crashed. Yet these weren't passed on to the consumer, with British Gas for example, there's been just a 10% cut in gas in January and a 10% cut in electricity in March.

So for most people, prices are still nowhere near as cheap as the tariffs they'd have gone to if they hadn't capped. Research in Feb ’09 from energy site Uswitch analysing the impact of price cuts on those who capped before August’s price rises said:

"Energy prices would have to drop by £185 or 16% before consumers on competitive fixed price plans would be losing out. Households that took out a fixed rate plan in July 2008 are currently paying £143 a year less on average than households on standard plans."

It's likely that most people made the major savings from the time of the big July price hikes, until the round of smaller cuts in January, since then the savings from being on a cap shrunk.

Overall it is possible a few people could've ridden the waves of the cheapest online tariffs and managed to undercut some of the less competitive caps. Yet like a fixed rate mortgage, the point of capping was for security against more price rises, in the end many got that and saved big bucks too.

Should I cap again?

A. The main consideration is if you can afford a price rise - if not a cap is an insurance policy against that happening though of course that doesn't guarantee it to be cheapest overall. It comes at a price as you will usually pay a £30-£70 penalty to leave during the time.

Traditionally capped tariffs have been 10-15% more expensive than normal tariffs, yet currently they are some of the cheapest tariffs around. This is likely because energy providers are predicting that overall prices will drop soon - so they can afford to price caps cheaply.

Whether they’ll be good value over their life is impossible to say, as it depends on competitive pressures, movements in wholesale gas and electricity prices, and exactly how much more you need to pay to cap.




More info in the should I cap section of the main Cheap Gas & Elec guide.

What about those who capped after August 2008?

A. Once those three caps had disappeared, some may have continued to cap for certainty; if you did, the price of caps then could be higher than the new 'price dropped' rates and they're likely to last longer. So again do a comparison.

Some of the capped tariffs had exit fees, so if yours does be sure to factor it in. If the savings are bigger than the exit fee, switching now is an option. Though if you got a long term cap, it does have the benefit of insulating you from any future increases (and who knows if that'll happen), so if it's not much more expensive you may want to stick with it.

How do I ask a question that isn't listed above?

A. You can suggest your question in the Capped Energy Tariffs forum discussion. While we can't answer personal questions we will try and review any issues missed and add them to this guide.

Also while there, you can chat through issues with other MoneySavers who may be able to help and make suggestions (though do remember it's an open forum so anyone can post there).