Exit Fees on Headline Grabbing Tariffs - A worrying trend?

1carminestocky

MarkyMarkD wrote: »

I don't see, cardew, why BG should respond to threats by giving you what you want. They will make enough money out of the exit penalty, surely, to justify letting you walk? There is no point having penalties if you waive them willy-nilly.

I still don't see it carmine's way, either. There's nothing contemptuous in requiring people to stick to the terms of a deal they freely enter into - it works both ways, after all. If Websaver 4 was MORE expensive than Websaver 3, should BG be able to force people onto the new tariff?

Of course not.

BG knowingly positioned the end date of the penalty at a date later than the particular tariff was going to last until. It then (as it has always done) introduced a new, cheaper tariff (based on average usage) in order to get to the top (or near) of the switching sites. It then makes the loyal punters who signed up for its previous product pay a fee to transfer to its 'new' product.

Why the need to introduce yet another new online tariff, anyway? Why not just reduce the price of the existing tariff if it was losing out on the switching sites to others? The real reason? A cynical bit of marketing. Grubby. And would be outlawed by a regulator who actually gave a toss about protecting the interests of the punter.

elcheap0

They needed another tariff to make up for the loss of revenue elsewhere.

MarkyMarkD

I don't understand your comments about the "extended tie-in", carmine. WS3 guaranteed 6% off standard credit tariff until 1 August 2010, and the tie-in is until 1 December 2009.

1carminestocky

MarkyMarkD wrote: »

I don't understand your comments about the "extended tie-in", carmine. WS3 guaranteed 6% off standard credit tariff until 1 August 2010, and the tie-in is until 1 December 2009.

And when was this tariff withdrawn from the market and replaced by Websaver 4? And, more pertinently, WHY was it replaced by Websaver 4? It's not as if Websaver 4 uses some revolutionary new methods and therefore Websaver 3 HAD to be replaced, is it? Anyone with at least one semi-functioning brain cell knows exactly why it was replaced..and it was nothing to do with enhancing the customer experience.

They've done this for 3 years now. I've always thought it sharp practice but now it's become much more sinister with the introduction of exit fees. Shouldn't be allowed. But luckily for the energy industry they have Ofgem 'regulating' them...

Cardew

I have to agree with carmine that it is a marketing ploy,(WOW - a utility company using a marketing ploy - how unusual!!!) and I certainly don't like the principle of any company enforcing penalty charges when a customer changes tariffs in the same company - unless of course they are on a fixed price tariff.

However in the case of BG WS3 and WS4, notwithstanding the objection to the principle, a very small sum is involved in making a customer wait until 01 Dec 09 to switch.

For my district an average 20,500/3,300 kWh customer will save £27 a year by moving gas and electricity from WS3 to WS4. So by forcing people to wait 3 months before changing to WS4, BG will gain about £5 in extra revenue, and lose a lot of goodwill.

As there are cheaper tariffs than BG WS4 with other companies I suspect many people will simply switch away from BG on 01 Dec. By waiving the penalty clause now for a switch to WS4, I suspect BG would have retained a lot of WS3 customers.

So as a 'cynical marketing ploy' it is something of an own goal IMO.

MarkyMarkD

I agree with Cardew's analysis.

BG could have chosen to waive the penalty out of goodwill, in order to retain customers for a longer period.

But most people will simply stay with them until 1 December and then reconsider their options - and what's to say that BG won't offer a competitive option at that time?

However much carmine complains about OFGEM, what BG are doing is not contractually wrong or even unfair. If you don't want to agree to an offer BG make to you, don't buy it. Get your energy elsewhere. They aren't imposing secret conditions - nobody is claiming they didn't know they were tied in on WS3, surely?

jb5

epsilondraconis wrote: »

Regarding the exit fees on the EDF online v5 tariff as highlight by the OP, I contacted EDF by e-mail to ask them to clarify their T&Cs.

I didn't mean to suggest that EDF had an exit fee, rather that more and more energy companies are starting to introduce them; also that this appears to be a new phenomenon for VARIABLE rate tariffs. (A development that is worrying for the consumer).

(Though good job on pinning them down on the question of an exit fee).:T

The EDF online v5, actually appears to be better for the consumer than a lot of the new variable rate tariffs.

It doesn't appear to have an exit fee
and
DOES allow existing customers to apply for the tariff, (at least it does if I am interpreting clause 10 correctly.)

10. The Online Tariff Version 5 is not available to customers who are already participating in any of Our other Capped Price, Fixed or Special Price Tariffs (“Related Products”). Customers who are already on Related Products who wish to participate in the Online Tariff Version 5 can only do so on the condition that they are automatically permanently withdrawn from their existing Related Product. Customers who are on Related Products should not seek to take up the Online Tariff Version 5 if this is not acceptable to them.

However, it is not all good news, even for this tariff.

SwanJon wrote: »

From what know the websaver series are all trackers - you are guaranteed a fixed discount below standard until a certain date, unlike the click series which could be moved at any time.
So, yes they can up the price, but only at the same time as their standard tariff. Not sure how this would play with the whole 65 day thing if the price does change though...

These new energy tariffs are certainly variable. They may well also track the changes to their standard tariff, but to take EDF as an example, the T&Cs state -

Our Online Tariff Version 5 Tariff is a variable price tariff which may be subject to price changes. However, until 31 July 2010, we will ensure that the Online Tariff Version 5 unit rates are at least 2% less than our equivalent Standard tariff unit rate

Sounds good, but if you crunch the numbers there is actually quite a large disparity between the two tariffs.

      Online Energy v5 tariff                        
        Rate 1    Rate 2        % differences            Average % difference
Gas      5.418      3.209        22.6      -5                     8.8    
Elec    10.952    8.285          33.53      17.07                25.3    
                            
          Standard Tariff                        
Gas      7.0000    3.0562                    
Elec    16.4762    9.9905

*If* my calculations are valid, this would allow EDF to raise their prices by roughly, 5% for gas and & 20% for electricity, WITHOUT breaching their T&Cs!!
Now, I am NOT suggesting that EDF would do that (it is not really in their long term interests).
Plus, I'm not sure whether the standard tariff I've used above is actually what is meant by "our equivalent Standard tariff unit rate".
However, *if* valid, then the "2% below standard rate" guarantee, doesn't really amount to much.


With regard to not taking up the offer if not acceptable. Two things:-

Joyful wrote: »

If a person feels that way they should stick to a standard tariff with no cancellation charges.

That is fine as long as there is a choice. My original point was that tariffs without an exit fee are becoming rarer. i.e. Once you have switched, you would be locked into a switching cycle by virtue of the fact that potentially ALL new tariffs (fixed & variable) would have a time-frame built into their contract.
Also,

MarkyMarkD wrote: »

If you don't want to agree to an offer BG make to you, don't buy it. Get your energy elsewhere.

Problem is, there are a finite number of energy suppliers.

I am VERY reluctant to return to BG after the complete and utter shambles I experienced the last time I was with them. My experience of nPower was also poor in several areas, so it would take a LARGE saving to make me switch back to them! I'm sure I'm not alone in this - though of course, the list of guilty parties may vary from person to person!

Another issue,

MarkyMarkD wrote: »

Just because a mortgage lender launches a cheaper discounted rate, doesn't mean that their existing borrowers on a tie-in should be able to switch without penalty. That is not how it works. Similarly, there is no logic in saying it's wrong for BG to charge the penalty if you seek to switch deals half-way through the tie-in period.

IMO there are two separate issues highlighted above and by other posts on this matter:-
One is switching during the promotional period, and the other is switching to another deal with the same company once the promotional period comes to an end.
If a customer signs up for a fixed period of time and there is a penalty to withdraw from the deal early, as long as that was made clear to the customer, I suppose the customer has little comeback.
However, it would be nice if variable tariffs that didn't "tie-in" the consumer were offered in the first place! l also think there are better alternatives to solve the problem of 'tarting' rather than imposing an exit fee; but if the regulator thinks exit fees are fine, then they must be!

As pointed out above, if the energy companies want to stop serial switchers from switching just to earn cash-back - don't offer cash-back, compete on price and quality of service.
If the company remains competitive, customers will remain loyal so long as the service is also good.
That would solve many of their issues, without resorting to punitive exit fees.

alared wrote: »

The difference between W3 and W4 is a fraction of a pence per unit.

As other posters comment above, why did good old BG choose to introduce yet another tariff, rather than modifying the rates on their existing tariff, if the differences are so small. Hmmm.

Secondly, and I may have misinterpreted the situation, it seems to me that once the promotional period HAS finished, the customer is ALSO prevented from taking up a new competitive tariff with the same supplier. i.e. the customer is forced to either -

pay WAY over the odds for their energy
or
jump on the "switching roundabout".

EDF Energy Online Tariff V5 view details
* LIMITED OFFER - may be withdrawn at any time (It seems that the deal has been EXTENDED)!!! - jb5
* 2% minimum discount against EDF energy standard tariff until the end of July 2010

Gas: 4 stars
Elec: 4 stars £342
Save £32

Switch npower Sign Online 16 view details

* Manage your account online
* Paperless billing

Gas: 2 stars
Elec: 2 stars £345
Save £29

Switch Scottish Power Online Energy Saver 6 view details

* Guaranteed discount until at least August 2010.
* Manage your account online with a dedicated online contact centre

Gas: 4 stars
Elec: 3 stars £383
£9 extra
Not available to
existing customers

Scottish Power Fix n Flex v1 Online NSC view details

* Fix n Flex prices until 31 July 2010
* Paperless billing

Gas: 4 stars
Elec: 3 stars £398
£24 extra
Not available to
existing customers

Another issue, one that was touched on in posts #5-#8, is the timing of the switch.
It appears to be very difficult to time a switch so that the customer spends the least amount of time on the "standard" tariff, whilst also avoiding any early exit penalty fee.
Though, if a switch *is* "inevitable", why not allow the consumer to nominate a switch-over date (c.f. insurance), that way avoiding both these problems?
(Currently, it is in the energy companies best interest to drag this process out &/or 'cloud the transition date in mystery'!; certainly if it means they can recoup some more of their initial outlay {cashback etc.})!

The idea of waving any 'cooling off' period to accelerate this process is interesting. If the consumer does their homework, and is not "pressured" into a switch by "special limited time offers" (see above table), then I suppose that could actually benefit the customer.
However, a nominated day for transfer would be better, then, provided the meters are read on that day - it doesn't really matter how long the paperwork takes, the respective companies are paid for usage on their tariff. (simple enough, no)?

Given what I have read - I still think consumers are headed for troubled times, and sadly - it doesn't necessarily have to be that way.

Cardew

jb5,
Nice post! and I certainly agree with the thrust of your arguments; particularly the ability to raise prices(EDF) and still remain within 2% of the standard tariff.

However take this statement.

As pointed out above, if the energy companies want to stop serial switchers from switching just to earn cash-back - don't offer cash-back, compete on price and quality of service.
If the company remains competitive, customers will remain loyal so long as the service is also good.

For that solution to work, it would mean every company refusing to offer cash-back or inducements such as 'free' champagne or Nectar points etc.

It is simply a fact that 'Joe public' can be seduced by these incentives, and one company breaking ranks would rake in loads of new recruits almost regardless of the prices they charged.

Also all the comparison sites would do everything they could to ensure that cash back/incentives were continued.

jb5

Cardew wrote: »

It is simply a fact that 'Joe public' can be seduced by these incentives, and one company breaking ranks would rake in loads of new recruits almost regardless of the prices they charged.

Also all the comparison sites would do everything they could to ensure that cash back/incentives were continued.

Yup.
As you point out it would take either -
collective co-operation by all the energy companies OR
Hmmmm, maybe they could be outmanoeuvred, by perhaps banning such deals entirely? Maybe by a regulatory body perhaps?!?!

Even just clear calculations of the TRUE cost of energy supplies - by a publicly owned 'comparison site' {to ensure impartiality} would help.

Another thread indicates that the OFT is going to be looking into comparison sites, why not the regulator also?
While they are at it, why not sort out some of the other issues as well!

Of course, I realise that, 'smoke & mirrors' are a part of a capitalist economy and that confusion marketing reigns supreme.
I would simply rather have the playing field not tilted so much in the companies favour.
I just think it would be nice, if Joe public was allowed to know what price they are paying (for everything, not just utilities), without having to research every decision. As it is, I fear some just cross their fingers and hope they aren't getting royally turned over for a buck.

1carminestocky

Personally, I'm more than happy for the OFT to investigate the comprison sites instead of Ofgem. This way 'joe public' gets a chance of justice and less chance of the usual whitewash (if Ofgem had investigated it).

This really is an embarrassment for ofgem (do they get embarrassed?). The OFT have stepped on their toes somewhat (and i couldn't be happier).