Fixed Term Contracts Begin to Appeal
Since last year oil prices have rose steadily causing energy tariffs to rise also, leading households to seek the safety of fixed term contracts to ensure future outgoings were under control. Now as oil prices are falling there is a realisation that energy tariffs will not decrease due to reasons such as forward speculation, high wholesale gas prices and reduced financial leverage due to the credit crunch – leading more households to consider a fixed term contract. Our previous posts also highlight why energy prices do not often decrease.
Fixed term contracts were first allowed in 2007 when Ofgem agreed that additional benefits would be available to consumers under longer contracts, such as the installation of smart meters. The cost of these devices can be built into a longer term contract in the same fashion as free routers are bundled with broadband contracts, and handsets with mobile phone contracts.
Capped energy tariffs for a set period is the attraction of a fixed term contract, allowing future household spending to be certain. Although these category of tariffs can be 10% higher than standard tariff, they can prove an area of safety for households that cannot afford any further price rises.
The obvious disadvantage of committing to a fixed term contract is that energy prices can go down, leaving the household stuck with higher financial outgoings. Exiting a fixed price contact early leads to penalty fees being demanded from the energy supplier, with the exception of moving house and prices in the fixed term contract being raised by the supplier.
There is a place for fixed term contracts, but do realise there is no perfect contract. Consideration of household expenditure is key, does it need capped, and how essential is it for monthly expenditure to be controlled? Only when he positive and negative are known and accepted can the fixed term contract be successful.
I big fan of http://utilitypricewatch.co.uk/fixed-term-contracts-appeal/, Greetings from Panama.