Category Archives: Energy

Ofgem reports fall in price differences between payment methods

Electric_kettle-1-editedOfgem has analysed differences in price between different payment methods used by consumers following an information request to suppliers in February 2014.  It has found that the gap between prepayment and direct debit has narrowed since 2009.  Read more here.

Background

Ofgem rules allow suppliers to charge different prices for different payment methods, but only if the amount reflects the cost of providing those accounts. Some larger suppliers do spread some of the costs of prepayment customers among the whole of their customer base. This is consistent with regulations and guidance, which allow for differences. These result in reduced price differences for vulnerable customers, who often do not have the option of alternative payment methods. Suppliers can also charge the same price regardless of payment method, so they can spread the costs they incur across all customers. However, the majority of consumers pay by direct debit (including half of all fuel-poor households) so any change would mean these consumers would pay more.

Findings

Customers who use prepayment meters are now charged around £80 a year more on average compared with direct debit customers for dual fuel. This is a significant fall as the difference was almost £140 in 2009. Ofgem is satisfied that across the market the price on different payment methods reflects the varying costs suppliers face in providing them. The price difference for quarterly payment compared to direct debit has remained at around £80 since 2009.

E.ON fine

Energy-picFollowing an investigation E.ON has agreed to pay £12m to vulnerable customers, after Ofgem found it had broken energy sales rules. E.ON has also committed to compensating any customer that it missold to, including automatic payments to some vulnerable customers.

Read more from Ofgem here.

The agreed redress package reflects the harm caused by E.ON’s extensive poor sales practices carried out between June 2010 and December 2013.

As part of this package E.ON has agreed to:

•Pay around £35 to 333,000 of their customers who are normally recipients of the Warm Home Discount. This redress package will benefit pensioners, disabled and low income families

•Additionally, make automatic payments to some vulnerable customers who may have been affected by E.ON’s poor sales practices

•Set up a dedicated hotline 0800 0568 497 and compensate all consumers that it missold to

•Write to around 465,000 customers it has identified through its redress work, informing them of how to get in touch to find out whether they were missold to.

Ofgem reports on Time of Use tariffs

As part of the Smarter Markets Programme, Ofgem commissioned the Centre for Sustainable Energy (CSE) to undertake analysis of domestic electricity use patterns and to model the potential distributional impacts of time of use (ToU) tariffs (energy tariffs with different prices at different times).

Ofgem has published CSEs report – see hereA gas ring burns on a ring at a home in west London, Tuesday, Au for more. The tariff modelling undertaken by CSE demonstrates the potential impacts of a ToU tariff on different consumers’ bills. It shows that the types of customers that benefit from ToU tariffs will depend on their current usage as well as how they respond and the types of ToU tariffs on offer.

The publication of this research represents a first step in seeking to understand how ToU tariffs may impact on different customers. Ofgem envisage undertaking further distributional analysis as they make progress towards specific policy decisions as part of the individual projects under the Smarter Markets Programme.

DECC consults on the future of the Energy Company Obligation

Energy-pic Today DECC published the consultation document on the future of the Energy Company Obligation (ECO). The consultation will run from 5th March to the 16th April.

DECC says:

The majority of these proposals were highlighted as part of Government’s announcement on 2 December 2013.  As set out in the December announcement we are proposing these changes to reduce pressures on consumer bills and ensure ECO provides value for money for energy consumers; while continuing to help tackle fuel poverty, support the development of sustainable energy efficiency supply chain and improve the energy efficiency of our housing stock.

While it is clearly right that we look to ensure government policies do not unreasonably impact on consumer bills, we also recognise the impact of these proposals on the energy efficiency market. In particular we recognise that the uncertainty created by the proposed changes has had an effect on delivery on the ground and that consequently the supply chain has seen a contraction in demand.

This consultation is a key opportunity to make sure we implement these changes as effectively as possible, taking into account industry needs and the experience of ECO delivery over the last year.

Consultation closes 16th April 2014.

Read more here.

 

 

CF launches “Next generation intermediaries”

Consumer-Futures-logo-editedLow levels of consumer switching characterise many essential services markets (think current accounts or energy suppliers) and mean that competition alone isn’t sufficient to drive improvements.  Two new reports from Consumer Futures have tackled this issue head on, introducing the concept of a new form of intermediary.

Next Generation Intermediaries (NGIs) are services that enable consumers to get better outcomes from complex markets by doing very little themselves – effectively outsourcing engagement to a new kind of intermediary service that works on their behalf. They would empower any consumer who lacks the time or inclination to trawl around for a better energy, financial services, or mobile phone package to instruct the intermediary find the offer that best meets the consumer’s declared criteria, and then to instigate and oversee the switch for them.

Let’s call it ‘do it for me’. It envisages a world where any consumer who lacks the time or inclination to trawl around for a better energy, financial services, or mobile phone package can instruct a new kind of intermediary service to ‘do it for me’. What’s more, once that service identifies the offer that best meets a consumer’s declared criteria, the consumer can again say ‘do it for me’ and have the service instigate and oversee the switch to the provider of that offer. And the consumer can then keep saying ‘do it for me’ in relation to related services that require decision support.

 This paper provides an overview of the Next Generation Intermediary (NGI) concept – outlining the potential that NGI type services offer and the qualities that set them apart from established intermediary services. It provides an overview of how NGIs would work in practice, the technological trends that make this kind of approach possible now, and some thoughts on who might come to offer NGI services.

Ofgem ban on complex tariffs

Ofgem-standard-picAs of 2nd Jan Ofgem has banned suppliers from offering complex tariffs.  The reforms also mean that once a consumer has decided how they want to pay for energy they will have just four core tariffs to choose from for gas and four for electricity, from each supplier.  Read more from Ofgem here.

The changes are part of Ofgem’s reforms for a simpler, clearer, fairer energy market and Ofgem believe that together these changes will make it far easier for consumers to compare deals and find the best tariff for them. From April 2014 a range of reforms are also coming into force to give consumers much clearer information on energy. For example, suppliers will have to tell consumers regularly in writing which of their tariffs is cheapest for them on bills, annual statements and other communications.

Citizens Advice expressed concern that energy companies should not use this as an opportunity to get rid of their cheaper deals – see more here. They will be helping people to cut down on their energy bills through Big Energy Saving Week which runs 27-31 January 2014.  The campaign will help consumers to find out about any extra help available from their energy firm.

Consumer Futures pointed out that it would be “naïve” to think this alone will sort out the problems in the energy market, and called for “A
fundamental competition review of the energy market that questions whether its
very structure fails consumers”.