Consumer Experiences in the UK: Pathway to Re-regulation? Presentation to QCOSS Forum on deregulating energy prices 24 October 2013

Transcription

1 Presented by Dr Gill Owen Research Program Leader, Consumers and Energy Markets, Monash Sustainability Institute Consumer Experiences in the UK: Pathway to Re-regulation? Presentation to QCOSS Forum on deregulating energy prices 24 October 2013

2 Outline of presentation GB energy retail market history and context Energy supply probe and market investigations New rules for the retail market Some points for discussion Monash Sustainability Institute 2

3 GB energy market competition and price de-regulation Gas privatised 1986; electricity 1989 Competition started with industrial consumers early 1990s. Competition for households - gas ; electricity 1998 Price controls retained for non-switchers until April 2000 end of price controls on direct debit. April all remaining electricity price controls ended. Gas price controls removed April 2001, except pre-payment meters and late pay tariff - competition less effective. Relative price regulation capped differential between Direct Debit/PromptPay and LatePay/ PrePayment tariffs All remaining gas price controls lifted in Monash Sustainability Institute 3

4 Concerns about retail markets Competition focus in particular segments e.g. dual fuel, direct debit Some consumers unable to get best deals - lack internet access, bank account or both. Limited consumers active switch regularly (Ofgem - 17% in 2009) 2007 research - only 8-19% switched to best deal; in aggregate, switchers received only between 28% and 51% of the maximum gains available to them. Research on Poverty Premium - consumers on low incomes often pay higher than average utility tariffs for a given consumption, either because of the payment method or being on a sub-optimal deal. Wilson C. M. and C. Waddams Price, Do Consumers Switch to the Best Supplier?, CCP Working Paper 07-6, July Donald Hirsch. Addressing the poverty premium, Approaches to regulation. Consumer Futures, June 2013 Monash Sustainability Institute 4

5 GB market Ofgem 2008/09 findings Annual switching rate 18% (50% had switched at least once) Range of tariffs fixed, variable, green energy, incentives & rewards Some concerns : difficult/time consuming; lack confidence; sceptical about benefits; worry about moving to a worse deal. Around half the less active consumers engage if approached by a sales person. most consumers who change supplier in response to such an approach do not investigate alternative deals.. and may not therefore be making well informed switching decisions. Almost all said they switched to save money but up to one third may not have achieved this. Higher for consumers who switched as a result of a direct sales approach (48% gas, 42% electricity) and for vulnerable and low income consumers. Monash Sustainability Institute 5

6 Ofgem action following energy supply probe & market investigations 2 new license conditions from September 2009 Required any difference in terms and conditions for different payment methods to be cost reflective; Prohibited undue discrimination in any terms and conditions. Plus measures to promote consumer engagement, voluntary standards for information, sales and marketing etc Since April full scale investigations of the retail market. More than 35 million of penalties and around 6 million of voluntary redress payments have been made to consumers. Government introducing powers for Ofgem to require companies to award consumer compensation in the Energy Bill 2013 Monash Sustainability Institute 6

7 SSE fine May 2013 Ofgem fined SSE 10.5 million for numerous breaches of obligations relating to sales activities. Ofgem found failings at all stages of SSE s sales processes - opening lines on the doorstep, in-store or over the phone, confirmation process which follows a sale. In particular, SSE consistently failed to provide clear and accurate information on prices and potential savings to enable customers to make an informed decision about switching. SSE established a 1.5 million mis-selling fund to compensate customers Monash Sustainability Institute 7

8 Ofgem retail market reviews Switching between retailers rates falling (12%) Switching between tariffs with same retailer increased (currently 15%) More tariffs - 37% say easy; 37% say difficult to compare Ofgem disappointed with progress since (figures from Ipsos Mori Customer engagement tracking survey for Ofgem June 2013) Monash Sustainability Institute 8

9 Ofgem 2013 new rules Limit on number of tariffs retailers can offer at any one time. Simplify tariff structures Simplify how discounts etc offered & presented. Migrate customers from expensive dead tariffs Legally binding standards of conduct - to treat consumers fairly Binding standards for information provision Monash Sustainability Institute 9

10 New core tariff rules By end of December 2013: Retailers limited to up to four core tariffs per fuel (electricity and gas) and per payment type. All tariffs - standing charge and a single unit rate. Suppliers can set the standing charge at zero - some are doing this. Dual fuel and online account discounts can continue. Will be simplified and apply uniformly across all tariffs as per year. Example - a retailer could offer a direct debit customer a choice of up to four electricity and four gas tariffs. The customer could choose a dual fuel discount and/or an online account discount in addition. Monash Sustainability Institute 10

11 New rules on fixed term tariffs From 22 October 2013 Retailers banned from increasing prices on fixed term deals or making other changes to fixed term tariffs (except trackers or price increases set out in advance). Retailers banned from rolling forward household customers onto fixed term contracts without their consent. Customers must be given a day window before the end of their fixed term tariff to decide whether to stay with the retailer or switch. Monash Sustainability Institute 11

12 Dead tariffs By 30 June 2014: All customers on expensive dead tariffs (i.e. tariffs that are no longer marketed) must be transferred onto the cheapest variable rate. A supplier will only be able to keep consumers on dead tariffs if they are cheaper, or as cheap, as the supplier s lowest standard or evergreen tariff. Monash Sustainability Institute 12

13 Information requirements By end of March 2014: Retailers required to give all customers personalised information - on each bill and other customer communications - on the cheapest tariff for them. Retailers to provide personalised estimates of usage to enable customers to compare tariffs more accurately. Retailers will use a new Tariff Comparison Rate (TCR) to help customers compare tariffs. Similar to APR for credit cards. Tariff information label - key terms and conditions to help consumers compare across suppliers. Monash Sustainability Institute 13

14 Ofgem s proposed tariff information label Monash Sustainability Institute 14

15 Reaction to Ofgem proposals Broad support for standards of conduct came into effect in August Reaction to tariff proposals mixed - some consider may reduce competition (e.g. retailers will level up prices, remove best offers) and limit innovation Some consumer groups consider choice still very complex Ofgem formal consultation - no retailers appealed against proposals so come into effect between October 2013-April 2014 Retailers already implementing some proposals (e.g. reducing numbers of tariffs) in advance of formal licence changes Monash Sustainability Institute 15

16 Some points for discussion A range of tariffs is to be expected consumers want different things and retailers try out different products - so how many tariffs are too many? Can we identify interventions that are likely to improve competition and benefit consumers - particularly vulnerable? Do we need to improve information - and if so how - (on prices and other terms of contracts) to make it easier for consumers to choose? What is the potential role of collective switching to make it easier for consumers to find and secure a good deal? Monash Sustainability Institute 16