Friday, 9 August 2013

Save money off your electricity bill: Always compare prices!

Before I moved out of home I never really thought about electricity bills and the fact that one supplier can charge significantly more for an electricity bill than another.  However they do.  The difference in prices can be stark!

This fundamentally does not make sense:  electricity is the very definition of a homogeneous product (i.e. one that is undifferentiated in any way from it's competing product).  There is no difference in quality and regardless of who your energy company is, it is going to come down the same power line (which incidentally, is owned by another company altogether) and power your house in exactly the same way.

This means that in the case of electricity you should ALWAYS go for the cheapest provider

When I did my post on how to save money on car insurance I mentioned that you need to weigh up the reputation of the supplier and whether they are likely to pay out when you claim and weigh this against the cost savings that you get.  You do not need to do this with an electricity provider.  The energy is going to come down the line regardless of who you are with!

This is the truly amazing thing...the product they are selling is exactly the same but some companies manage to charge more than other!

It is amazing how much money you can save

Given the type of product they are selling, I always assumed (and I think most people assume) that the prices companies charge would be pretty similar and that it probably wouldn't be worth switching for the sake of a few dollars.

However if you are with one of the big providers (e.g. AGL or Origin) the chances are that you can save a lot by moving to a
smaller company, or at least shopping around.  One of my colleagues at work got a saving of 40% by moving to one of the smaller competitors, Simply Energy (who by the way had nothing to do with this article).  Although this is purely anecdotal, it is a story that I have heard repeatedly.  I do not have the statistics however it is really worth shopping around for these kind of savings.

If I could save 40% on my car insurance bill and get exactly the same product you can bet I would do it in an instant.

If you don't want to switch you can always try negotiating with your current provider

If you call up your electricity company and have the quote from their competitor at the ready they will normally come down very quickly to their lowest possible rate.  They will often not be able or willing to come down as low as you'd like but it is definitely worth a go!

If it is really that simple...why don't people switch?

There is no real logical reason why people don't switch but I believe it comes down to 2 things

  1. Apathy - people can just genuinely not be bothered thinking about this and shopping around every year.  And electricity companies rely on this.  They rely on giving you a good deal up front and then you not bothering to shop around for comparisons.
  2. Confusion - I just went on AGL's website and the options and packages are confusing.  Packages are designed to be confusing so that you don't know that you are paying a higher rate than you should be
    • The easiest way to get around this is to take a look at your current bill and see how much you pay
    • Then call up a competitor and ask them how much you will pay with them...if they think you are switching to them they will normally explain to you how the pricing works and how they can save you money
    • Then call your company back, ask them if they can match your competitors rate, whether you are on the right plan and whether you should be switching and how much you should be paying approximately.   If the company thinks you are about to switch they will normally offer you good rates or explain how they can save you money
So don't be lazy...get out there and save yourself some cash!

It is really easy to do and the call centre staff are surprisingly helpful when they think you are a potential new customer or when they think they are going to lose you.  There is no reason at all to pay more than you should absolutely have to

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