A better deal for London’s fuel poor?

Ofgem today announced a package of measures designed to bring down fuel bills for people on pre-payment meters and on expensive out-of-date tariffs.

So what’s the deal?

Firstly, energy companies will be allowed to market deals directly to each others’ customers.If a customer has been on an “expensive default tariff” for more than three years, their details will be poured into a database and they will be available for other energy companies to make contact with better offers. The aim is to create a “competitive fairer market for all consumers”. It sounds more like it could create a cacophony of competing offers, piles of unwanted direct mails, yet more cold calls and a big heap of confusion.

Wouldn’t it be fairer – and an example of better customer care – if those incumbent energy companies that have left their customers lingering on expensive default tariffs for over three years actually had a duty of care to make sure they were automatically put on a cheaper tariff? Wouldn’t that (a) create happier customers getting a better deal, (b) create more customer loyalty and retention, making the energy companies more stable, and (c) reduce the inordinate amount of marketing spend that we’re going to keep seeing from energy companies and switching providers? (Sadly), that’s not an option, the Ofgem statement says.

Instead we will have the marketing land-grab. A consequence of this: those with bigger marketing budgets will be able to spend more to lure people in, reinforcing the dominant positions of the (more affluent) dominant suppliers. And as much of the messaging will be around cheapest-price-for-energy, those smaller suppliers with great track records in customer care and service provision, but whose energy costs a fraction more, are at risk of being squashed out of the market on price.

A second part of the Ofgem announcement, and one which dovetails in chaotic splendour with number one, is that the restriction on the number of tariffs that a supplier can offer is being lifted. The restriction is only a recent thing: there were the free-for-all years of multiple tariffs and much confusion (though perversely, switching rates were higher when we were all confused than since tariffs have been restricted…). To reduce confusion, we reduced the number of tariffs. All well and good. Now we’re going back to multiple tariffs.

Now, in many ways, I think this is a good idea. It brings back to life the market for community based tariffs based on geography (the Brighton Tariff, for example) and on interest (the National Trust members’ tariff). Differentiation in a market is a good thing, even if these hooks into energy tariffs have nothing to do with the quality or cost of service provided.

Where I worry about this is in its relationship with Announcement Number 1. If as an “expensive default” customer, you received literature from another supplier, right now, it would only offer a handful of tariffs. Post-announcement, it could offer you the Bob Smith of 44 Acacia Avenue Tariff, hand-crafted for you (assuming you are Bob Smith). But is there a duty to ensure that the Bob Smith Tariff is actually the best deal that Bob Smith can get? All it has to be (to comply with #1) is better than the expensive default. Will Bob Smith be readily able to compare the multitude of tariffs with which he is now being bombarded? Won’t all of this choice and information make poor old Bob more likely to retreat into the safety of what he knows and just simply stay put?

Onto part 3 of the announcement, and the part that has garnered most headlines. From April 2017, there will be a (temporary) cap on the price of energy bought through prepayment meters. This should save people on prepayment meters around £75 per year.

This actually and genuinely seems like a thing to help people who have – for years – been paying more than everyone else simply because of their choice of billing mechanism.So, a round of applause from me for this one… with a couple of “yes, but” reflections:

Yes, but politics: shall we note that energy price controls (in the form of a price freeze) were used a political machete against Ed Miliband when he suggested them before the last election?

Yes, but energy efficiency: price caps are always and only a short term fix. Prices will adjust – upward – in due course. And a spike in the global oil price would no doubt trigger a get-out-of-jail-free clause for the energy companies. Fuel poverty is a function of household income, energy prices and the energy efficiency of a home. You can tinker with income and energy prices, but they are inherently volatile. The only way to mitigate risk of fuel poverty in the long term is through energy efficiency improvements.

Last but not least, the Ofgem announcement calls for better prompts on bills to encourage people to compare tariffs. Again, a yes from me, though my caveats this time are behavioural. Firstly, do the disengaged (those pesky people on expensive default tariffs) actually read their energy bills in any detail? Will they even notice a sad emoji telling them they are paying more than their neighbours? And secondly, how does this translate to the increasing trend of web-based account management for householders? More and more people are using a web interface – will there be a requirement on companies to put something on their own corporate websites saying “don’t forget to compare tariffs”? There may well be (in fact, this is the one where I have least concern!)…

What do you think? Tell us on Twitter: @LDNFuelPoverty or email liz.warren@se-2.co.uk with your views. We’re always happy to be told we’re wrong!