‘No obligation’ energy tariffs could become a thing of the past

Ofgem has removed the rule that prevents power companies from forcing customers onto long-term agreements.

The energy regulator said that it had ditched the restriction that ties a customer to a supplier for just four weeks to encourage providers to introduce energy efficiency measures and smart meters into customers' homes.

Power firms have long argued that it would be too costly for them to install energy-efficient equipment in homes because customers were free to switch to a cheaper provider once the work had been carried out.

Karen Darby, founder of SimplySwitch.com, the price comparison and switching service, comments: “From a consumer’s perspective this is a worrying move by Ofgem. Switching suppliers has led to the competitive market that we enjoy today and any move that leads to onerous contract conditions is unwelcome. We’ve seen in other markets contracts of 18 months and more introduced and this inhibits people’s ability to find a better deal.

“The ruling is likely to have come about to help suppliers recoup the capital costs of installing smart meters and energy efficiency measures in customers’ homes. It is likely that they will introduce longer term contracts and we suspect that once one supplier acts, others from the ‘big six’ will follow.

“If mainstream suppliers do introduce longer term tariffs, it will be the first time that any has taken this step. To date this has only applied to certain capped price deals and smaller, new-entrant providers that have introduced a 12 month contract with benefits that were justified to the regulator in advance.

“If suppliers do introduce longer contracts, it could be good news for them but not necessarily for consumers. Such a move would only be good news for consumers if it offered them an attractive deal with additional, meaningful benefits.

“While all consumers want to do their bit to help the environment, the main thing people want is value for money and not to feel they are tied into an uncompetitive tariff. A 12 month contract could take away the uncertainty of future price hikes for the contract period, but on the flip-side, it could restrict customer choice, remove the competitive edge from the industry and see those already tied-in left paying more if prices fell.

“Time will tell how suppliers react to the ruling from Ofgem. We recommend to consumers that it is worth checking you are on the best deal now as there are currently no barriers to switching. If suppliers do to introduce longer term contracts, we hope that consumers won’t have to pay punitive ‘exit charges’ if they wanted to switch.

“Since the domestic energy market was fully deregulated, consumers have benefited from increased competition. Any changes to how the market operates should be fully regulated to ensure that consumers as well as suppliers benefit.”