Proposals to reform roll-over tariff arrangements could have the unintended consequence of reducing engagement in the energy sector, a fuel poverty expert has warned.
Under the proposals, announced in the long-awaited Energy White Paper today (14 December), customers who do not opt-out could be automatically switched to a new, cheaper contract instead of being rolled over onto a default tariff when their deal ends.
The government stresses that default or roll-over tariffs are important for ensuring continuous supply and service for customers, even where they have not agreed a specific deal. However, it adds, these tariffs enable “passive engagement” within the market which limits competition and allows suppliers to charge “excessive prices” dubbed a “loyalty penalty”.
However, Matthew Cole, chair of trustees at charity Fuel Bank Foundation, believes the proposed reforms could have the opposite effect and lead to less engagement.
He told Utility Week: “It’s really important that families are on a tariff that meets their needs, and that they can afford, and I do worry that somebody ‘choosing’ a tariff for you could have the unintended consequence of people becoming less engaged in energy.
“Looking to the future and the country’s net-zero target, we need the exact opposite; a super-engaged, energy-literate nation who make uber-informed choices about their energy usage.”
Juliet Davenport, Good Energy chief executive, also believes customers should be encouraged to shop around. She points to the fact that some of her company’s customers actively choose Good Energy’s standard variable tairff (SVT).
She said: “The loyalty penalty has been an enduring problem in the energy market, but automated switching in a landscape where there are multiple different tariffs could be difficult to implement while still making sure customers are getting a product which is right for them.
“Government is at risk of tarring all customers with the same brush. We proved to Ofgem as part of the price cap derogation that customers on our SVT are there because they have actively chosen it because they want to support renewable generation.
“Any policy that rides roughshod over that choice should be very carefully considered. The solution should be one which encourages consumers to shop around, without doing it for them.”
Green Energy UK boss Doug Stewart, believes a better option would be to ban the practice of certain energy supply companies taking direct debits before any service has been delivered.
He added: “This puts consumers’ hard-earned cash on the balance sheets of their supplier, not in the consumer’s pocket. This practice is used by some suppliers but not all, and it’s led to some suppliers confusing cash with profitable viability and when suppliers have gone bust, Ofgem has merely passed these costs onto the consumers of established, prudent energy suppliers.
“Politicians should stick to politics and policy frameworks and stop trying to micromanage energy suppliers that are operating in a highly-competitive market.”
In addition to the roll-over tariff arrangements, the government says it will create a framework for opt-in switching, where customers are prompted to switch, thus increasing engagement with the market.
The energy retail market
The white paper also commits to ensuring greater transparency in the energy retail market and that consumers should be provided with more accurate information on the carbon content of energy services and products. This could mean requiring suppliers to quantify the additional environmental benefits of so-called green energy tariffs.
There will be a consultation on how the thresholds for the ECO and warm home discount schemes can be removed to avoid distortions in the market. This could potentially involve introducing a buyout mechanism as part of reforms to the ECO scheme beyond 2022.
Government will assess what market framework changes may be required to facilitate the development and uptake of innovative tariffs and products that work for consumers and contribute to net zero. The framework will need to protect consumers while enabling innovation and competition.
Additionally the paper outlines proposals for enhanced consumer protections, such as the potential regulation of third parties like price comparison websites and energy brokers. This is a reflection of customers increasingly using different channels to switch provider or to access new products, rather than engaging directly with their supplier.
Ofgem has already unveiled a series of measures designed to protect millions of microbusiness customers from “unscrupulous” energy brokers, as well as enabling smoother switching.
Finally there are proposals to take powers to regulate smart appliances. Regulation will be based on principles including interoperability, data privacy and cyber security.