Doing nothing costs you money. The Competition and Markets Authority (CMA) discovered this, as part of its investigation into the energy market: it’s not working for all energy consumers.
This is because the people who stick with the same energy tariff year after year typically end up paying more than those who switch. Customers on poor value default tariffs typically pay approximately £300 a year more than customers on the cheapest fixed-term tariffs.
Ofgem has the power to direct suppliers to test measures to help consumers make an informed choice in the market (‘consumer engagement’ measures). This is based on selection criteria we published in January 2017.
The CMA decided that Ofgem should take forward a number of activities to reduce consumer detriment in the energy market. These include:
- Develop a service (or range of services) for customers who have been on an expensive ‘standard variable’ tariff, or default tariff, for over three years. The Energy Market Investigation (Database) Order 2016 compels suppliers to provide data about these customers to Ofgem. This is so that Ofgem can run a service (or services) to help you get the best energy deal and monitor the effectiveness of those services.
- Ofgem to establish an ongoing programme of research (including trials) to find new and more effective ways to help consumers get a better energy deal across the market. This includes those whose fixed tariff is ending as well as those who are on a poor value default tariffs.
More information about the database and our trials is outlined below.
About the database
To help consumers on more expensive standard energy tariffs, the CMA recommended that we:
- Develop and operate a secure database of information of consumers who have been on a poor value default tariff with the same supplier for three years or more. The database will contain, for example, information about these consumers’ energy tariffs and annual energy use. This is needed to calculate cheaper tariff offers.
- Test how the service(s) work so we can address any potential running problems and ensure customer data is secure.
- Monitor the impact of the service(s) on improving engagement in the market.
In addition, the CMA recommended that we work to identify, test and implement measures to give consumers information that will further encourage engagement in the market.
Testing the database
We don’t want to launch a service to millions of customers without having tested it first. So we are trialling different approaches to test what is most effective.
We will be rolling out a database and service(s) that will help customers switch energy deals. Currently we are working with suppliers to ensure their data is accurate and their systems are ready.
Since the CMA concluded its investigation into the energy market in 2016, we have been testing different approaches for engaging energy customers and helping them to switch to cheaper tariffs.
The Active Choice Collective Switch trial offers customers an exclusive tariff negotiated by an Ofgem-appointed independent price comparison service together with a simple process for starting a switch online or by phone.
Customers can phone the independent price comparison service or go to their website to see the collective switch tariff and other available tariffs from the open market.
The trial is following on from the first Active Choice Collective Switch trial that took place in spring this year and we are testing whether we can achieve the same results on a larger scale and with more suppliers.
Alongside this, we are also testing the open market comparison service without an exclusive tariff. We want to test how much impact the inclusion of an exclusive tariff has vs an open market search only. Both parts of the trial will show customers the personalised projected savings available to them.
The results of the trial will inform our next steps, including our ongoing policy development process, which could include considering how we might bring the benefits of this approach to a wider range of disengaged energy consumers.
For the collective switch trial, energy suppliers will send a letter to each customer listing what information will be shared if you choose not to opt out. This includes:
- The tariff (deal) you are on now and how you pay for your energy
- How much energy you use a year and the kind of meter you have
- Your name and address
If you are contacted and didn’t opt out, your supplier will send the price comparison service your details in order to calculate to calculate your personalised savings if you were to switch. You will then receive a letter showing you your projected saving – from there you will be able to choose if you would like to switch.
Why is Ofgem getting this data?
Ofgem takes our obligations under the General Data Protection Regulations (GDPR) very seriously. We are asking for this data because we are implementing what the CMA asked us to do, which is undertaking trials to see how we can encourage consumers to engage in the energy market. In other words, we are acting in the ‘public interest.’ We need to do it this way, because a lot of the customers we are targeting rarely engage with the energy market. If we asked people to individually let us know if they would like to participate in the trial, we wouldn’t get much of a response. Therefore, we could not do what the CMA has asked us to.
However we have added an extra step for consumers to opt out of having their details transferred if they do not want to participate in the trial. Also customers can have their details deleted at any stage.
Will my data be secure?
Customer data will be transferred and held securely, and in accordance with UK data protection law.
Building on the earlier Cheaper Market Offer Letter (CMOL) trial, we are currently conducting the Cheaper Market Offer Communication (CMOC) trial. This includes a much larger and more representative group of customers and it will test the effectiveness of different variations of the communication.
Working with three large and two mid-tier suppliers, approximately 600 000 customers have been selected to take part in the trial. Eligibility is based on customers who have been on a poor value default tariff for over three months and includes customers in debt, customers on Warm Home Discount, those with an Economy 7 or pre payment meter or on a Safeguard tariff.
The trial is due to end in Autumn 2018.
In February 2018 we ran a collective switch trial. Approximately 50,000 customers who had been on a default tariff for three years or more received letters showing personalised savings (based on consumption and existing tariff) if they switched from their current deal to the exclusive collective switch tariff.
The collective switch tariff and other available tariffs on the open market were available from the independent price comparison service on their website and over the phone. Some customers also made their own comparisons and switched either to a new supplier, or to a better deal with their current supplier.
What was the result of the trial?
This was the most successful trial to date. More than one in five disengaged customers who took part changed their energy deal. This is eight times the switching rate for customers who received no information through the trial about better offers.
See our high level trial results.
Ofgem’s first large scale trial which tested the effect of a Cheaper Market Offer Letter (CMOL) on encouraging engagement and increasing switching levels among dual fuel customers that had been on a poor value default tariff for over one year. The trial was carried out between June and August 2017 and included two energy suppliers and a sample of 135,000 customers. The CMOL trial had a positive result, showing an increase in switching. See more details on the trial results.
This trial tested the effectiveness of a ‘digital service.’
We ran our digital service trial in Northampton over eight weeks from September 2017. The trial wasn’t open to everyone in Northampton – only with those who had been on a standard variable tariff for three years or more with E.ON our partner supplier for the trial. Around 10,000 customers were involved.
Tariff information and energy consumption were pre-entered for customers within the digital service. All they needed to do was confirm their postcode, address and the name of their current supplier to see that they were on an expensive deal.
This digital design also meant we didn’t share customer data with any energy suppliers. If customers wanted to, they could also choose to share limited information held by us with a price comparison website through the service. They could then help customers shop around further.
If you’d like to see the initial results of our research trial, see our page on research with household consumers.
In January 2017, we carried out a small trial with suppliers contacting customers with better tariff offers by post. The results were encouraging, see more information about this trial. Our user research indicated that a digital service might better meet consumer needs, so we developed the Check Your Energy Deal Service (see above).