How Ofgem is creating a more competitive, fairer market

Rob Salter-Church profile photo

Rob Salter-Church

Partner, Consumers and Competition
12th February 2018
Areas covered:
Consumers
Electricity
Gas
terraced uk street
We're making it easier for people who switch to get a better deal, while protecting those who don't from paying too much. Here's how.
 

A fairer market

At the beginning of this month, Ofgem extended the prepayment safeguard tariff to almost 1 million vulnerable households.

The safeguard tariff, which stops suppliers from charging customers on poor value deals too much, now covers over 5 million households.

Ofgem is also working with the Government on extending temporary price protection to all customers on poor value default deals as soon as possible.

This wider price protection, which is likely to cover over 10 million households, could be in place next winter.

It means that by next year, Ofgem could be regulating prices for over half the population.

A more competitive market

It’s right to protect people from paying too much for their energy.

It’s unacceptable that people who don’t switch should pay hundreds of pounds a year more for their energy than people who do.

But while Ofgem is putting in place price protection for millions of households, Ofgem is also pushing ahead with reforms to make it easier for those who switch to get a better deal.

That’s because customers who are protected will be able to save even more money by switching to a cheaper deal.

They might also want to switch to benefit from a range of new “smart” or digital products and services coming onto the market.

In the long-run, a competitive retail market is the best way to keep prices low and to drive up quality of service for consumers.

Having said that, if it remains harder for the most vulnerable in society to engage, there could still be a role for targeted price protection for those who need it most.

So how are we creating a more competitive market?

Automatic compensation if switches blocked

Firstly, we are working with industry to improve the reliability and speed of the switching process for consumers.

This switching programme which we have confirmed today will allow people to switch by the end of the next working day at the same time as reducing the number of switches which go wrong.

We are also looking at making suppliers which delay a switch unnecessarily or create other problems for customers during the process automatically pay compensation to consumers. 

Secondly, we are looking at the best ways to specifically help customers on the most expensive deals who rarely – if ever - switch to get a better deal.

Last autumn, Ofgem trialled its simplified online switching service for 10,000 of E.ON’s standard variable customers in Northampton.

Customers did not have to enter their tariff and consumption details to find a better deal as these were already on the system.

This makes switching quicker and easier compared to using a price comparison website, where users have to enter their bill information manually to find out how much they would save.

Initial trial results showed that more than twice as many people who used the service switched compared to those who didn’t, saving on average around £290 on off their annual energy bill.

Simplified collective switch

In a separate trial, last year 100,000 consumers on the worst deals received a personalised letter with cheaper deals available with rival suppliers.

Encouragingly, the results showed that switching rates among those who received the letter were three times higher than normal and they saved more money compared to those who switched without receiving a letter.

Following the success of this first trial, Ofgem is announcing details of a second similar trial which will start in May. This trial will involve over 250,000 customers, who will receive a letter or email from their supplier telling them about three available cheaper deals.

Ofgem is also announcing a separate trial of a simplified collective switch offer aimed at 50,000 customers.

This collective switch will be easier to take part in. Unlike other collective switches, the customers will not need to enter their existing bill details in order to have their personal savings from switching calculated.

We will continue trialling new ways to ensure consumers get the help they need to switch. Informed by these trials, we will put obligations on suppliers to use the most effective ways to engage their customers.

Suppliers need to step up

So Ofgem will protect consumers who don’t switch from being charged too much while such reforms are put in place to deliver a more competitive market.

The government has said that its planned price cap on all default deals will be temporary.

And that this price protection could be removed sooner if there is evidence that the energy market is able to work for all consumers.

It’s in the interests of suppliers, particularly those who are opposed to wider price protection, to step up and make Ofgem’s reforms work.

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