Helping to Switch Customers Back onto the Energy Market

Published on Tuesday, 21 February 2012 09:54
Written by Philip Cullum

Energy is something that we can’t live without so it’s vital that customers have confidence that the market is working effectively and that they are not paying more than they need to. But our research indicates low trust levels and little consumer engagement, with a clear call for greater simplicity, clarity and certainty

Customers should be easily able to compare prices and make an informed choice about which supplier is offering the best deal. It sounds straightforward. But this isn’t the experience of most consumers. In March last year we published the results of our Retail Market Review (RMR), which showed that customers were bamboozled by the sheer number and complexity of tariffs.  This is hardly surprising given that the number of tariffs increased from 180 in 2008 to around 400 by early 2011.

This complexity means the majority of household energy customers don’t actively seek out better deals, with 6 in 10 households saying they have never switched supplier. So Ofgem is proposing radical action, cutting down the number of standard tariffs and making them much easier to understand.

Each supplier would be able to offer just one standard tariff per payment method (direct debit, prepayment meter or standard credit) for both gas and electricity. Ofgem would set a standing charge for these ‘no frills’ tariffs and suppliers would be required by us to show the unit price on top of this charge, so that customers could easily compare the different companies’ standard prices.

We still want suppliers to have the space to innovate and meet different consumers’ needs, so we propose to allow room for fixed term, fixed price tariffs – there would be no restriction on the number, type, structure or duration of these.

However, suppliers would be banned from automatically rolling-over customers at the end of these contracts, with anyone not signing up to a new deal defaulting to the standard tariff. This should tackle the issue of consumers being stuck with deals which are initially attractive but become uncompetitive over time.

Alongside making tariffs less complicated, we are expecting suppliers to improve and standardise the information they send customers, such as bills and annual statements. Our research indicates that many people struggle with the amount of information they are sent and the way it is communicated.

We are also proposing enforceable standards of conduct for suppliers. We want to set out some principles for how energy companies should engage with their customers, then hold them to account for delivering these outcomes.

These standards will cover both domestic consumers and business customers. Our investigation has shown clearly that business customers – particularly small businesses – can struggle to engage in the energy market. We will be tackling this in various ways such as extending existing rules around the provision of contract terms and conditions so that more smaller businesses will be covered. We are also seeking greater protection for business customers who use energy brokers.

We are consulting on all these reforms and will make final proposals in the summer. We will also consult on the legal wording of the regulations to bring the reforms into force. Once these are in place we will be able to take enforcement action if suppliers break the rules. Alongside this, we have asked government for the power to require companies to compensate consumers; at present we can only levy fines.

We believe it is imperative that energy companies restore customer trust. We have seen encouraging signs that the suppliers recognise the concerns we have identified, so we are therefore calling on all of them to back our reform programme. In doing so it will help them to draw a line under the past and start to re-build customer confidence in the energy market.


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