Ofgem is exploring new special safeguards to protect less digitally savvy customers from being overcharged after the price cap is lifted, the regulator’s chief executive has revealed.
Delivering the keynote speech at the end of Energy UK’s annual conference on Tuesday (16 October), Dermot Nolan said: “However competitive the energy market becomes, we still believe some people are likely to continue to struggle to engage.
“As the market becomes more complex and data rich, if we don’t tackle potential digital divisions that could widen leaving the disengaged even worse off than today.
“We are planning actively to think about default arrangements in the future to make them simple and straightforward and still allow innovation to continue.”
He said one option under the microscope is to pool disengaged customers into a central default provider where they would pay the same basic rate, based on simple “pass through” supply costs.
Nolan said that an alternative might be to introduce collective switching whereby default customers are auto-switched to a better deal unless they opt out.
He said Ofgem’s collective switching trial had resulted in annual savings of around £300 for more than 20 per cent of customers on poor value deals who participated, while increasing levels of switching eight-fold.
But he expressed “slight disappointment” with Npower’s refusal to join in the trial and warned suppliers that Ofgem would take steps to encourage them to participate in future exercises.
“We will continue to trial best ways to help more disengaged customers on more expensive deals to get a better deal. We expect companies to fulfil their obligations, if you refuse we will take action.”
Npower said it is continuing with its application for a “fuller” court hearing to address “important issues” raised by Ofgem’s collective switching trial process.
At the Energy UK conference, Nolan said Ofgem is aiming to issue a final decision on the level of the price cap early next month with a view to introduce it early next year.
Last month, Ofgem proposed that the cap be set at £1,136 per year for a typical dual fuel customer paying by direct debit.
Nolan warned that Ofgem would not allow energy suppliers to recoup squeezed costs by cutting corners on customer service standards.
“We have stepped up competition and enforcement activity particularly around customer service. We won’t hesitate to use these powers to protect customers if necessary.
“We accept that’s not easy but if suppliers want to compete in the energy market of the future they will all need to raise their game and become more efficient.”
Nolan said that Ofgem will respond to concerns about small energy retailers by issuing proposals to revise the supplier licence regime, which he expected to publish in November. Usio Energy became the latest supplier to cease trading ealier this week.
Ofgem’s CEO also said the regulator will outline proposals over the next month on shifting to greater reliance on network connection charge rather than how much electricity customers use.
This is designed to address issues raised by the increasing use of home generation by generally well-heeled customers, whose access to the grid is effectively being subsidised by their poorer counterparts who can afford the expense of installing solar panels.