MSE News: Escape energy lock-ins as prices soar

Consumerist

backfoot wrote: »

I would personally be specific in naming Npower and Atlantic and simply name the most recent tariff of each where this practice is seen.CF can find the detail.
. . .

I think it would also be helpful to say what many posters have said,that the deferred discount effectively becomes a termination fee following a price increase.
. . .

As Ofgem have ruled that termination fees are not payable in these circumstances,it should follow that these Principal Terms of the contract, should still be honoured under SLC 23 .i.e. the accrued equivalent discount.

Thanks for your encouraging comments, backfoot.

I take your point regarding the identification of the NPower Online 23 tariff. I had included it in an early draft but was worried about making the submission too lengthy. I'll put a reference back in, then.

I thought I'd covered the disguised termination fee point at the end of para 2. Do you think the point needs strengthening?

I had referred to the Ofgem guidance letter of 16 Aug in an earlier draft but, again, was worried about making the submission too long. I have, however, raised the possible anti-competitive nature of the practice.

I'll go back to incorporate your suggestions and post a second draft as soon as.

Thanks again.

backfoot

Yes you have included the termination point....sorry.

Still think it's worth following up that bit with the link to the Ofgem guidance note,saying deferred discounts should be similarly treated.

Well done.:T

Consumerist

backfoot wrote: »

Still think it's worth following up that bit with the link to the Ofgem guidance note,saying deferred discounts should be similarly treated.

Er. . . not too sure which guidance note you're referring to here. Could you be more specific?

backfoot

http://www.ofgem.gov.uk/Pages/MoreInformation.aspx?docid=42&refer=Markets/RetMkts/Compl/pricechange

Consumerist

Ok. I've already got a copy of that but I don't see any direct reference to discounts. ? ? ?

backfoot

Consumerist wrote: »

Ok. I've already got a copy of that but I don't see any direct reference to discounts. ? ? ?

No that's the follow on point. If you feel that deferred discounts are a termination fee by another name, (in practice), then why should they be treated differently following a price rise?

As you sign up to the Principal Terms,which are price and associated discounts,then you should be entitled to the accrued value up to the point of switch. The supplier's unilateral variation has caused the contract break not any action by the customer.

Consumerist

Ok. I see your point. Couldn't have put it better myself. May use those very words.

Just honing the, hopefully, final draft and will post later.

As a point of information would you recommend email or snail mail for this submission and should it be addressed to anyone in particular?

backfoot

[EMAIL="contact@consumerfocus.org.uk"]contact@consumerfocus.org.uk[/EMAIL]

I would mark it for the attention of the Confidence Code Manager.

Consumerist

Ok. Here we go then for, hopefully, the final draft. It's rather more verbose than originally intended but I hope I've covered the salient points.

Dear Sirs,

Provisional discounts on variable energy tariffs

I write to express my concern regarding suppliers increasing use of provisional discounts included in their tariffs but which are not actually paid until the last day of a one-year variable-tariff contract which has been imposed on the customer. Under the Confidence Code, such timing allows the discount to be deducted from the tariff costs calculated by price comparison sites. I would point out that my concerns regard only variable-rate tariffs.

An example of such a tariff is the recently-launched NPower Sign Online 23, whose terms include termination fees and the following, which is a reflection the standard conditions applying to all their tariffs :-

" ***Your annual discount: If you pay by monthly Direct Debit continuously for 12 months we’ll give you a discount off your bill (£100 if you buy both electricity and gas, £50 if you buy just gas or £40 if you buy just electricity). Your discount will be credited to your account on or before the last day of the 12th month after becoming eligible and then on or before the same last day of each year you continue to pay this way. "

The end result of this practice is that suppliers can offer low prices when a tariff is launched and then increase prices later, safe in the knowledge that discounts need not be paid to a customer who rejects the price rise and switches supplier; the forfeited discount is an effective termination charge.

I submit that some suppliers may be deliberately frustrating the intentions of the regulator by the simple act of confiscating discounts, instead of charging a termination fee, where a customer switches supplier following a price increase.

I am aware that Ofgem has recently issued guidance, in a letter of the 16 August 2011, to all suppliers, indicating its interpretation of the meaning of SLC 23 (c). As a consequence of this letter, under the provisions of SLC 24, any contractual termination fee should NOT be charged where the energy supplier has increased its prices. By extension, shouldn't this provision also apply to the provisional discounts which suppliers are now using as a termination charge?

I further submit that imposing a defined-length contract on a variable tariff may be an unfair contract term since it puts the consumer in the position of having to pay any imposed price increases until the contract ends or having to forfeit the discount which originally made the tariff seem attractive in comparison tables.

If a saver puts money into a variable-interest account which pays interest annually, would it be justifiable for the bank to confiscate the accrued interest if the account is closed before the anniversary date? Consumers do not have to save but they must have energy. It is my view that a customer would reasonably expect energy discounts to be paid on a pro-rata basis in the same way as interest in a variable-rate savings account.

I accept that it is a simple matter for the informed to strip out these provisional discounts when evaluating a tariff - after close scrutiny of terms & conditions. However, it is widely accepted that a high proportion of customers simply do not understand their energy bills and rely almost entirely on comparison tables to make their switching decisions. It is probable that most of those consumers are not even aware that discounts may be lost if they switch because they have not been able to make head or tail of the ever-more-intricate terms & conditions associated with a multitude of different tariffs on offer.

In my view, genuine discounts should be incorporated into customers' bills as either reduced unit prices or as a pro-rata proportion of a fixed discount deducted from each monthly/quarterly bill.

Given the advantage to suppliers of boosting their position in comparison tables, the reason the practice is expanding seems clear; if bad practice benefits a supplier, all its competitors are likely to adopt that bad practice so as to enjoy the same benefit. In these circumstances only a regulator can prohibit the practice to re-establish a level playing field.

Accordingly, as a first step, I would ask whether Consumer Focus considers that changes to the Confidence Code might be warranted to prevent undue advantage being gained in comparison tables by suppliers who include provisional discounts in their variable tariffs.

Secondly, I would value your opinion as to whether the effect of such practices on consumers might be anti-competitive in their nature.

Regards,

If there is anything that could or should be removed then I I'd be glad to shorten it a tad.

backfoot

I personally think it's great. I could minor wordsmith it for ages but it reads clearly and powerfully.

I'd let it go and see what comes back.

Once again,well done for having a go. :T

This is of course in addition to my own submission which hasn't yet been replied to.