Tougher rules on fixed term energy deals come into force as Ofgem’s retail market reforms begin to bite

Press release
Publication date
Industry sector
Supply and Retail Market
  • Fixed means fixed – consumers on fixed deals now get price certainty
  • Automatic roll-overs now banned for householders on fixed deals
  • Energy suppliers are now subject to Ofgem’s reforms and the next step will see simpler tariffs coming into force at the end of December

From today new Ofgem rules come into force meaning energy suppliers are banned from increasing prices on fixed term tariffs.1 They are also banned from automatically rolling householders on to another fixed term offer when their current one ends. These new rules are the latest stage of Ofgem’s reforms to reset the energy market so that it is simpler, clearer and fairer for consumers. They are in addition to reforms, introduced in August that require suppliers to treat consumers fairly, and are part of Ofgem’s work to make a positive difference for consumers.

Ofgem’s review found that with many fixed-term deals suppliers could still increase prices where they were index linked, for example, to standard tariff prices. This would tie consumers into a tariff they could not get out of even if prices went up. Ofgem also found that consumers were being automatically rolled onto new fixed term offers which could include termination fees, meaning they missed out on chances to compare the market.

Ofgem is giving consumers more protection so they have the certainty that if they choose a fixed term deal, the price and conditions they sign-up to will not be altered. Consumers will not be rolled-over to a new fixed-term deal, but to a tariff which allows them to switch away without penalty. They will also get over 40 days warning that their fixed deal is coming to an end so they have plenty of opportunity to find the best deal for them.

Andrew Wright, Ofgem’s Chief Executive, said: “Ofgem is resetting the energy market in consumers’ favour to make it simpler, clear and fairer. Today’s extra protection for consumers on fixed prices is just one of a range of reforms we are bringing in over the next six months to hold energy companies to higher standards. If suppliers fail to deliver, then Ofgem stands ready to take enforcement action to protect consumers.

“In an era of rising prices it is vital that competition works as effectively as possible. Our reforms seek to give consumers the tools they need to find the best energy deal for them and to ensure that suppliers have to treat them fairly. Ofgem is going to make it easier for consumers to “vote with their feet” and for new suppliers to enter the market and take on the Big Six. Now we are looking for energy suppliers to pick up the baton and put their efforts into restoring consumer trust. Encouragingly suppliers have shown a willingness to start on this journey by signing up to our reforms and are now acting to implement them.”

 

-Ends-

Notes to editors:

 

Summary of today’s reforms

1. Fixed term contracts

  • Suppliers will be banned from increasing prices, or making other changes to fixed term contracts which are to the disadvantage of a customer. The only exceptions to this are “tracker” tariffs that follow an independent index over which the supplier has no control, or structured price increases set out in advance which are fully in line with consumer protection law. This new rule applies to any contracts entered into on or after July 15 2013.
  • Suppliers will be required to notify customers that their current fixed-term is coming to an end between 42 and 49 days before the contract ends.
  • Between this notification period and the end of the fixed term contract, suppliers will be banned from charging a termination fee should the customer decide to switch.
  • Suppliers will be banned from automatically rolling a customer over onto a further fixed term contract.
  • Instead suppliers will be required to default customers to an evergreen contract if the customer takes no switching action before the end of their fixed-term contract (this default contract must be the cheapest evergreen tariff with the supplier from 31st March 2014).

2. All contracts

  • If customers are told about a price rise and choose to switch then existing rules mean that the supplier cannot apply the higher price. We have made it simpler for customers to benefit from this “price protection window” as they will no longer have to notify their old supplier to benefit and keep their current prices until their new contract begins.

Timeline

Fairer treatment – introduced August 2013

Since August new Standards of Conduct require suppliers and any organisation that represents them, such as brokers or third party intermediaries, to ensure that each domestic customer is treated fairly.

These cover three broad areas.

Behaviour: suppliers must behave and carry out any actions in a fair, honest, transparent, appropriate and professional manner.

Information: suppliers must provide information, (whether in writing or orally) which is:

Process: the supplier must:

    • Complete, accurate and not misleading (in terms of the information provided or omitted);
    • Communicated in plain and intelligible language;
    • Relates to products or services that are appropriate to the customer to whom it is directed; and
    • Fair both in terms of its content and in terms of how it is presented (with more important information being given appropriate prominence.
    • Make it easy for the consumer to contact them;
    • Act promptly and courteously to put things right when they make a mistake; and
    • Ensure that customer service arrangements and processes are complete, thorough, fit for purpose and transparent.

 Simpler tariffs - to be introduced by the end of December 2013

  • Suppliers will be limited to offering up to four “core” tariffs per fuel (electricity and gas). This will apply to each payment type. Suppliers will be allowed to offer these tariffs to collective switching schemes. They will also be able to offer extra fixed term tariffs into schemes that meet our criteria.
  • All tariffs will have a standing charge and a single unit rate. Suppliers can set the standing charge at zero if they wish and some are doing this. This means that complex two tier tariffs will no longer be allowed.
  • Dual fuel and online account management discounts will remain. They will not be considered as “core tariffs” but as a discount. They will be simplified and will apply uniformly across all tariffs as £/pence per year. For example, a supplier would be able to offer a direct debit, standard meter, customer a choice of no more than four electricity and four gas tariffs. The customer could then choose a dual fuel discount and an online account management discount.

Clearer information - to be introduced by the end of March 2014

  • New rules will be in place requiring all information suppliers send to consumers to be simplified, more engaging and personalised to them.
  • Suppliers will be required to give all their customers personalised information on the cheapest tariff they offer for them. This information will appear on each bill and on a range of other customer communications.
  • Suppliers will be required to give a comparison of old and new prices in a simple pounds and pence form when they inform customers of a price increase, to provide consumers with a clearer indication of the impact of a change in prices.
  • Suppliers will use a new Tariff Comparison Rate (TCR), in bills and a range of other communications to provide “at a glance” information to help customers compare tariffs. The TCR will be similar to the APR comparison rate used with credit cards.
  • Ofgem is also requiring suppliers to provide personalised cost projections for the next 12 months based on the customer’s actual consumption (or, where this is unavailable, the best estimate of their consumption), which will also be included on bills and a range of other communications. This will enable consumers to compare tariffs more accurately when assessing their options.
  • A new tariff information label will set out key terms and conditions as well as relevant information to help consumers compare across suppliers. 

3. Dead tariffs

  • All customers on existing, expensive “dead tariffs” (evergreen tariffs that are no longer marketed) must be transferred onto the cheapest variable rate by June 2014. A supplier will only be able to keep consumers on “dead tariffs” if they are cheaper than, or as cheap as, the supplier’s lowest standard or evergreen tariff.

4. Ofgem

  • Ofgem is the Office of the Gas and Electricity Markets, which supports the Gas and Electricity Markets Authority, the regulator of the gas and electricity industries in Great Britain. The Authority's functions are set out mainly in the Gas Act 1986, the Electricity Act 1989, the Competition Act 1998 and the Utilities Act 2000. In this note, the functions of the Authority under all the relevant Acts are, for simplicity, described as the functions of Ofgem.

 

For further press information contact:

Chris Lock: 020 7901 7225

Howard Rhoades: 0203 263 9629

Lisa O’Brien: 020 7901 7426

Felicity Beverley: 0207 901 3858

Out of hours media contact number:  07766 511470