A fairer deal? Regulator bans fixed term energy tariff increases

• 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

The energy industry watchdog Ofgem has announced that from today (Tuesday 22 October) new rules will come into force meaning energy suppliers are banned from increasing prices on fixed term tariffs. They are also banned from automatically rolling householders on to another fixed term offer when their current one ends.

The regulator says that 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. Ofgem says that they are in addition to reforms, introduced in August that require suppliers to treat consumers fairly, and are part of their work to make a positive difference for consumers.

The announcement on fixed term deals may provide some reassurance amid increasing concern about the rising costs of fuel bills in the UK. Many industry commentators have advised consumers to switch to fixed term tariffs to avoid further price hikes for the duration of that contract. In the last few days, three energy companies have announced price rises - British Gas said their prices would go up by 9.2% on 23 November; SSE will increase prices by 8.2% from 15 November and Npower announced that a dual-fuel bill will go up 10.4%. Other suppliers are expected to follow suit.

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.”

ScottishPower found in breach

Ofgem has also announced that it has found one energy provider guilty of breaching its market licence conditions.

ScottishPower has agreed to pay an £8.5 million package that will directly benefit vulnerable consumers and compensate consumers that were misled, following an investigation which found that the company did not have in place appropriate management arrangements to adequately train and monitor their doorstep and telesales agents. This resulted in misleading information being provided to customers during sales approaches.

ScottishPower has accepted these failings, which have now all been rectified. ScottishPower stopped doorstep sales in 2011 and has put in place independent checks on the conduct of their telephone agents in all new sales. Had this not been the case the company would have faced a higher penalty.

Ofgem says that the size of the payment reflects the impact of the sales practices on consumers and it also recognises ScottishPower’s cooperative engagement with Ofgem to put right their processes. Ofgem’s investigation found no evidence of a strategy by ScottishPower to deliberately mis-sell to customers.

Neil Clitheroe, ScottishPower’s CEO of Energy Retail and Generation, said:

“I am happy that this matter has now been concluded. We accept Ofgem’s findings and we apologize unreservedly to those customers affected. This arose as a result of new regulations which were introduced in 2009. I am sorry to say that we didn’t implement these properly at that time. However, I am pleased that Ofgem has made it clear that they found no evidence of a strategy by ScottishPower to deliberately mis-sell to customers.”

“Since 2011 we have taken determined steps to resolve the problem: doorstep selling was stopped; and all telephone sales staff are properly trained and monitored. Independent verification of our current sales process suggest that we are now doing a better job. Customers dealing with us should expect to be given clear, accurate information which they can evaluate easily, in the light of their individual needs.”

ScottishPower will be writing to all customers affected regarding compensation.

Ofgem’s Senior Partner in charge of enforcement Sarah Harrison said: “Ofgem welcomes ScottishPower’s recognition of its failure to comply with the energy sales rules which are there to protect the consumer. This is an important step forward and demonstrates a commitment by ScottishPower towards re-establishing consumer trust.

“Today’s announcement is a clear signal to energy suppliers of the consequences of breaching licence obligations and of the importance of taking action to put things right for consumers when they go wrong.

“Ofgem’s retail market reforms, backed by enforcement action, will create a simpler, clearer and fairer energy market for consumers. Now it is time for suppliers to put these changes into action and rebuild consumer trust.”

• ScottishPower will pay £7.5 million to benefit vulnerable customers and establish a £1 million customer compensation fund
• ScottishPower’s actions today represent an important step by the company to re-establish consumer trust

ScottishPower has set up set-up a £1 million customer compensation fund. Customers that believe they may have been mis-sold to can either complete an online form or call the dedicated phone number. Customers can call Scottish Power on 0800 0740 362.

www.scottishpower.co.uk/salescompensation

ScottishPower will deliver the remaining £7.5 million through payments to customers identified under the Warm Home Discount Scheme. Payments will be made to recipients of the 2012/13 core and broader group. It is estimated that over 140,000 customers will receive a payment of around £50. ScottishPower will send an explanatory letter to all affected customers and the payments will be made automatically by ScottishPower by December 2013.

Ofgem has now concluded three mis-selling investigations. The two ongoing mis-selling investigations are into npower, which was launched in 2010, and into E.ON, which was launched last year.

Talking point - energy prices.

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