Escape energy lock-ins as prices soar

Update, 20 Sept 2011. The bullet points below have updated information for EDF and Npower customers to escape lock-ins as their price rises were announced after this story was published.

Millions of households can use a little-known loophole to escape from tariffs that appear to lock them in, if they'd benefit from switching.

Many gas and electricity deals come with an exit fee of up to £100 (though typically around £60) for those who leave before the term of the deal ends.

Key Points

• Many firms charge fees to leave energy deals early

• But hikes mean you can escape fee when switching from variable deals

• You must inform supplier before price hike to avoid charge

But where a supplier puts prices up, because that results in a contract change that's detrimental, rules from regulator Ofgem mean many consumers don't need to pay that penalty as long as they inform their power firm they wish to switch before the increase.

Two of the big six firms, British Gas and Scottish Power, have already announced price rises for next month, with the rest expected to follow. Prices will rise by up to 19% on 18 August and 1 August, respectively.

To escape an exit penalty, here's what to do if you're with:

• British Gas. You must contact it before the price hike on 18 August if you wish to leave.

• Scottish Power. You must contact it before the price hike on 1 August if you wish to leave.

• Update, 20 Sept 2011. EDF and Npower customers have until 10 November and 1 October, respectively, to act. Both firms have confirmed it is possible to escape lock-ins.

We are hearing reports some call centre staff are taking a lot of persuasion before waiving fees so, where appropriate, make sure you quote your rights (below) and please report successes in the discussion link at the bottom of the story.

Those free to leave can take advantage of the cheap fixed deals that are likely to close soon.

Anyone who has switched recently may already be on a good deal, though it is nevertheless worth checking, using a price comparison site.

Who is eligible?

The fee waiver only applies to some on variable rate tariffs who want to switch.

Technically, not all customers on variable deals are eligible to escape charges. However, British Gas and Scottish Power say they will waive fees on all variable tariffs.

An Ofgem spokeswoman says: "Under Supply Licence Condition 23 (SLC 23), suppliers have to inform customers at least 30 days in advance of any change to their contract that would significantly disadvantage the customer or increase charges.

"Even if a customer is on a fixed term deal with an early termination fee, they will not have to pay a termination fee if they notify their current supplier of their intention to switch on or before the day the change takes place."

Under those rules, Ofgem stresses not all variable rate customers are eligible to escape their exit fee, such as where there is no change in the contract term.

In particular, this applies to customers whose deal tracks their suppliers' standard rate by giving a percentage discount off that price.

Such a contract would allow for a rise as there is no monetary definition of the standard rate.

A British Gas spokesman says: "For customers on a variable price deal, they have at least 30 days before the price change takes effect to contact us and move to another deal or supplier without charge."

A Scottish Power spokesman says: "The cancellation fee is not applied for customers on products that are affected by the price change. Customers have the right to cancel until 1 August."

Who gets exit penalties?

Only those who have switched in the past few years are likely to face a fee for leaving their current deal early.

Either the deal they have signed-up for will come with the penalty or they may have been locked into a new deal when their previous tariff expired – a practice Ofgem wants outlawed.

Those on a standard tariff are usually free to move at any stage.

You can't leave a fix early without penalty because the price won't rise given the nature of the product.

Should you switch now?

If you can't afford price rises, a fixed rate deal means the price per unit of energy is guaranteed for the term.

The millions on standard tariffs can save £150 per year fixing, compared to even pre-hike prices given a typical standard price is currently £1,150 for the average family compared to the cheapest fix at a typical £1,010.

Cheaper variable deals are available, but they're susceptible to rises.

If not fixing, it's best to stay put for now and wait until all the big suppliers have hiked prices to compare. Otherwise you could just be jumping from the frying pan into the fire by moving to a provider that then hikes prices even more.