Are you depressed yet?

Because we are.  We have listened, read and spent many an ungodly hour giving TV and radio interviews since last week and here we are:

 

Consumers are being told that switching energy tariff is too difficult.

 

Sounds patronizing, doesn’t it? Well, that’s what we have taken away from the recent media uproar. It all started when David Cameron on October 17th told parliament that too few people were switching supplier and benefiting from a better deal. So the government would legislate and make suppliers put everyone on the cheapest deal automatically. Gulp.

 

Since then we have heard one too many times that it is simply too difficult to work out how to get the cheapest deal. Read it here, for example. The subtext – customers should just be given the best deal by their supplier, problem solved.

 

We share the Prime Minister’s frustration about the energy suppliers (and he has been working with them for just 2 years!).  But we have been working with energy suppliers since 2001 and we can guess what will happen if suppliers will be forced to put everyone on their cheapest offer. That’s right: they just won’t have one anymore. The difference between cheapest and most expensive tariff will shrink until there are no savings left.  Most customers  - even those who engage with the market and switch regularly to get the best deal – will be losing out.
 
And guess who’ll be laughing then. The suppliers, of course!
 
There is ample precedent that suppliers choke off supply in response to rule changes that are meant to do the opposite. Back in 2001, the regulator Ofgem introduced new wholesale trading rules called NETA (New Energy Trading Arrangement). These were supposed to force suppliers to trade more energy through the open market and drive down the cost of wholesale energy.  What did they do? They did indeed trade more energy through the markets. But they also mothballed a number of power stations, thus restricting supply – and (guess what) wholesale prices stayed where they were.
 
Here is what we learned from talking to our own customers about what is holding them back:

 

  • Consumers sometimes don’t know how much energy they use and what tariff they are on.
  • Consumers don’t trust switching because they feel they don’t achieve the savings they were promised.
  • Consumers often wait for too long because they think they might have to pay a penalty if they switch.
These problems can be addressed with simple solutions:

 

  • make usage data available to comparison websites via electronic links to the suppliers so that everyone can have an easy and accurate savings comparison quote (this has been discussed as part of the government’s ‘mydata’ initiative – but nothing has happened so far).
  • ban doorstep selling for good, because that is what has given switching a bad name.
  • Allow penalties only on Fixed Price tariffs, but don’t allow suppliers to penalize customers who switch away from a tariff that has three months or less left to run.

And for good measure: extend the Consumer Focus Confidence Code that currently covers price comparison websites only to also include suppliers, to level the playing field.

 

But don’t expect suppliers to put everyone on their cheapest tariff and hope for a good outcome!

Posted by Florian

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