Energy suppliers will have to give 30 days’ notice of any price increases, a reform designed to improve competition by giving customers a greater chance to switch utilities.
The rule, introduced by Ofgem, the industry regulator, came into effect on Thursday. The idea is to shake up an energy market dominated by six big utility companies, who command a market share of 99 per cent.
Any price rises will have to be preceded by a letter – and if a customer chooses to switch supplier within the notice period, they will continue paying the old tariff until the change takes place. This reform arises from Ofgem’s review of the retail energy market, which concluded last month.
“Ofgem is determined to ensure that supply companies play it straight with consumers,” said Andrew Wright, the regulator’ senior partner for markets. “Giving customers advance warning of price rises is one way of ensuring a fairer deal for them.”
Although the UK’s energy market has been the most competitive in Europe, relatively few consumers use their option to change supplier. Surveys suggest that about a third have never done so in the 20 years since the privatisation of the gas and electricity industries.
Only 20 per cent of customers are classed as “proactive” or “reactive” to the price signals sent by competing suppliers. The remainder are largely wedded to their existing providers.
Hannah Mummery, an energy expert for Consumer Focus, said the latest reform was unlikely to change the situation on its own.
“This is a more effective trigger for consumers to think about switching. But consumers still need to be confident that there are deals from other suppliers that offer better value and service.”
Energy companies rank among the most distrusted organisations in Britain. Many consumers are reluctant to go the trouble of switching because they believe all the deals on offer are essentially the same.
Ms Mummery added: “This is still one of the least trusted markets by consumers. Until people have confidence that energy prices are fair and that there is much to choose between the pack of suppliers, many consumers will continue to see little benefit to switching.”
Energy UK, representing the big suppliers, pointed out that many began giving written notice of price rises before this rule came into effect.
“In the past six months, the leading energy companies have all provided advance notice to customers of their price changes, going beyond the legal requirement at the time,” said Christine McGourty, director of Energy UK.
“A priority now is to ensure that mailings to millions of homes can be managed effectively to ensure the best possible service for customers.”
28.04.2011 - FT.com
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