Decision on review of domestic and non-domestic objections
Decision
We have decided to retain the existing domestic and non-domestic objections regimes.
Domestic objections
In our Forward Work Programme for 2015-16 we committed to a review of supplier objections. We said a key consideration would be whether the current arrangements could be improved so that indebted domestic customers are more easily able to get the best deal, while ensuring suppliers can take appropriate steps to have debt repaid.
In February 2015 we issued a call for evidence on the potential benefits, costs and risks of reforming, or removing, the right of domestic (and non-domestic) suppliers to object. We considered the responses carefully and identified areas where we needed more data to inform our policy conclusions. As a result, in September 2015 we issued a request for information to seek more detailed information, from certain domestic suppliers (including the six largest and a cross-section of smaller suppliers). We supplemented this information through bilateral meetings with some suppliers and with consumer groups. We also sought the views of our Consumer First Panel. Rather than abolish debt objections, the Panel wanted us to put pressure on suppliers to improve communications with indebted customers so as to increase internal switching to cheaper tariffs that would enable faster debt repayment. We published a report of the Panel’s findings at the end of 2015. Most recently, we commissioned the Centre for Sustainable Energy (CSE) to look in more detail at the costs and benefits of prohibiting debt objections. The CSE submitted a report in January, which we considered carefully and which helped inform our decision.
We have now published our decision to retain the existing domestic debt objections regime. Suppliers should continue to take into account their obligations under the Standards of Conduct when exercising their discretion to object to a transfer and consider whether it is fair to object to a low level of debt in the particular circumstances of the customer. Suppliers should also review the content of their debt objection letters with a view to improving the quality of their communications with those customers and ensuring full compliance with their licence conditions. Further detail is set out in the domestic decision letter.
Non-domestic objections
For non-domestic consumers, suppliers can object to the customer transfer where there is a provision in the contract that allows them to prevent the switch. Our most recent evidence confirms that the most common reasons for objections are contractual terms relating to (i) a fixed term period, where the vast majority of business customers are on fixed term contract, and (ii) debt. As part of the upcoming programme of changes to move towards faster and more reliable switching, we have taken a fresh look at whether objections in non-domestic market should be part of a redesigned switching process. This letter summaries the issue, explains the work we carried out, presents the results of our analysis and our next steps.
We issued an information request in November 2015 to 23 suppliers for data on their business customers, split by consumer size, for both gas and electricity. The data submitted fed into our Impact Assessment and other analysis which helped to inform our policy decision. Our Impact Assessment found that the current objections regime delivers significant net benefits to business consumers, compared to a market without objections. The benefits of the current regime spread from lower bills for all consumers to a higher degree of protection for independent suppliers, able to facilitate increased competition in the market and choice for business consumers. Conversely, the main costs of the objection regime are higher tariff rates when a transfer is delayed and additional costs if a transfer request is being permanently blocked and the impact objections may have on consumers’ ability to switch and the resulting effect on competition. Given the magnitude of the net benefits, we believe the non-quantified costs are unlikely to change our overall conclusion to retain the current objections regime.
However, our analysis also concluded that there are some areas with residual consumer detriment. This is with regard to microbusiness customers and may be a result of non-compliance with existing SLCs. In light of this, we expect suppliers to review the compliance of their objections policies with respect to the SLCs in the focus areas we identify, as well as their broader obligations in terms of key communication they have to provide to microbusinesses, both at point of sale and throughout the switching journey. We will consider how best to address our findings within our overall compliance monitoring approach.
We have now published our decision to retain the rules relating to switching objections for non-domestic customers and announce our programme of enhanced monitoring.
In light of the Competition and Markets Authority’s decision to introduce price transparency measures for a subset of microbusinesses, we may also consider a further review of the objections regime for a narrower definition of microbusinesses. Further detail is set out in the non-domestic decision letter.