Helping customers find the best deal
14. Nearly all the 19 million customers who have
not changed their electricity supplier would save money by doing
so. For example, if they all changed to the cheapest supplier
in their area together they would save approaching £670 million
(13 per cent of their bills).
Ofgem told our predecessors that they had noted that 95 per cent
of people were aware that there was a competitive choice. Attitude
surveys had showed them that 70 per cent of people believed that
switching was very easy, and that just under 90 per cent of people
who had switched had found the process very easy.
15. Consumers are likely to obtain a deal that best
suits their circumstances when they can easily compare prices
and terms of competing offers. Many customers, however, find it
difficult to compare prices and very few shop around for the best
deal - in an Ofgem survey 40 per cent of those questioned said
it was very or fairly difficult. Of the six million people who
had changed supplier, 88 per cent could have got a better deal
if they had shopped around.
16. This is not the first time the Committee of Public
Accounts have examined problems experienced by consumers finding
the best deal in newly competitive markets. Our predecessors'
Report on the work of the Office of Telecommunications found that
there was a need for greater transparency and clarity in telecommunications
pricing structures if customers were to make informed choices
between different operators.
And their report on the work of Ofgem in overseeing gas competition
noted that customers were encountering similar problems.
17. Ofgem stated that they were very keen to ensure
that as many people as possible knew about the advantages and
ease of switching. They said that they produced detailed information
on their website, regularly updated, on the price offerings available,
and received something like 45,000 hits every month.
Many of the people who downloaded information from the website
were in a position to act as "multipliers" of the news,
and many newspaper reports on the subject of electricity competition
had drawn on information from the website. The freephone service,
for which energywatch were now responsible, received some
5,000 calls a week. Customers could call it and be sent an information
pack to help them find the cheapest supplier. The telephone number
(0845 601 3131) was on the back of every bill for gas and electricity.
18. Asked whether they were worried that most customers
who have changed supplier had not got the best deal, Ofgem said
that people did not always optimise the very best solution but
that this did not necessarily imply market failure. The best choice
today might be replaced by a new offer a month or two later.
19. Ofgem agreed that one of their aims was to make
the price offerings made by different suppliers as comparable
as possible to potential customers. To this end, Ofgem had tried
to devise an Energy Cost Index, which they had tested on groups
of consumers. They had found in testing, however, that groups
of consumers had not found the index helpful, while the Consumers'
Association was sceptical about its usefulness. Ofgem had not
found anywhere in the world a single useful index where there
was a competitive market, but they considered that there were
ways of making comparisons easier and they would be coming forward
20. Asked what they were doing to help customers
find the best deal, energywatch said they saw their role
as being to develop information to enable consumers to become
confident and assertive. They wanted to see price and quality
information conveyed in a standard format that would enable easy
comparisons by individuals.
They needed to become known to consumers, and that involved exploring
new and unusual ways of communicating with consumers. The activities
they had planned for the coming years were intended to reach out
to consumers who did not know about the choices available, and
to encourage companies to be clear about what was in the market.
They might include building links with organisations like the
National Association of Citizens Advice Bureaux and local authority
trading standards services.
21. A National Audit Office survey showed that there
were significant variations in the proportion of customers who
had switched electricity supplier, and that rural customers were
less than half as likely to have changed their electricity supplier
than those who lived in urban areas.
Ofgem said that doorstep selling was the most effective way of
marketing and was most effective when houses were close together
which was not the case in the countryside. Making customers aware
of the competitive choices available in the countryside was a
problem. Ofgem were taking a number of steps with groups such
as Action with Communities in Rural England and the Women's Institute
with the aim of making sure that customer awareness was properly
spread through the countryside.
22. Ofgem said that a further reason why rural customers
were less likely to change supplier was that more than three-quarters
of those who switched did so to a combined gas and electricity
deal. Such deals were available to a smaller proportion of customers
in the countryside because fewer of these customers were connected
to mains gas.
Customers on low incomes
23. When our predecessor Committee examined gas competition
they found that people on low incomes who used a prepayment meter
were not benefiting as much from competition as others.
A National Audit Office survey showed a similar picture in the
electricity market. While 30 per cent of customers with household
income above £25,000 a year had changed supplier, only 20
per cent of customers with household income of less than £9,500
a year had changed supplier. A major reason was that a higher
than average proportion of poorer households used a prepayment
meter. Few of the new entrant companies competed with the tariffs
of the former monopoly suppliers for customers with a prepayment
meter who cost more to serve.
24. Asked when people on low incomes would benefit
as much from competition as the rest of the community, Ofgem said
that they had capped the additional amount that could be charged
for prepayment meter customers at £15, although they pointed
out that most low income customers did not use prepayment meters.
As part of their Social Action Plan, Ofgem had also encouraged
actions by companies to try to find ways of giving prepayment
meter customers access to different and better means of payment.
When prepayment meter customers were asked why they did not change
to other means of payment, most of them said they liked prepayment
meters because they were a means of controlling their budgets.
25. Gas and electricity suppliers have the power
to prevent customers who owe them money from moving to a competitor,
which was intended to prevent customers changing supplier to avoid
paying their debts.
When our predecessors reported on gas competition, they recommended
that Ofgem pursue vigorously their work with companies to make
it easier for prepayment meter customers to change supplier.
26. Ofgem told our predecessors that debt blocking
was a complicated issue and there was no simple and agreed view
as to the right answer. They regretted that it was a continuing
problem but they did not have the legal powers to compel and impose
an answer on the industry. Progress depended on persuasion. It
was reasonable that there should be a means of stopping people
moving around the system and leaving bad debts. Ofgem had in 2000
proposed changes to market rules to remove a supplier's ability
to stop customers in debt moving to another supplier. Inadequate
progress on the debt issue was one of the reasons why Ofgem had
not withdrawn the price caps over gas prepayment meter customers.
Ofgem were, however, now encouraging companies in a series of
experiments to find the best way of dealing with the problem.
27. Many customers find it difficult to compare prices.
As a result, few shop around for the best deal. Ofgem recognise
the value of making price offerings as comparable as possible
for potential customers. The Committee is, therefore of the opinion
following the failure of their attempt to devise a usable energy
cost index to help customers, that Ofgem should now come forward
with new proposals so as to provide price and quality information
to customers in a way that enables comparisons to be readily made.
28. The proportion of customers benefiting financially
from competition varies between parts of the country, depending
in part on the extent of doorstep selling. Ofgem are seeking to
promote information about the competitive market in rural areas,
where fewer customers are changing supplier, by working, for example,
with organisations such as Action with Communities in Rural England.
Ofgem and energywatch should set targets for improving
consumers' knowledge of how to obtain the best deal, so as to
reduce regional disparities in switching rates.
29. Customers on low incomes are less likely than
those with larger incomes to benefit from competition by changing
supplier. This is, in part, because many use prepayment meters,
for which few companies offer competitive tariffs. As a result,
tariffs for those on low incomes are commonly higher than for
customers using other payment methods. Although Ofgem are promoting
alternatives to prepayment meters to provide customers with cheaper
means of payment, many of them do not wish to change payment method.
Ofgem should, therefore, encourage greater competition and reduced
prices in this market, for instance by promoting technological
improvements that would reduce the costs to suppliers of supporting
30. The ability of suppliers to prevent customers
with outstanding fuel debt from changing to another supplier,
which our predecessors highlighted in relation to gas competition,
applies also in the electricity market. Ofgem have still not succeeded
in identifying a solution acceptable to the industry, and should
work with suppliers to find a way of allowing customers with debt
to change supplier without avoiding their obligations to their
11 C&AG's Report, para 3.2 Back
C&AG's Report, paras 3.8, Figure 11 and 3.11 Back
64th Report of the Committee of Public Accounts, Countering
Anti-Competitive Behaviour in the Telecommunications Industry,
(HC 842, Session 1997-98), para 4 Back
8th Report of the Committee of Public Accounts, Office
of Gas and Electricity Markets: Giving Customers a Choice-The
Introduction of Competition into the Domestic Gas Market (HC
171, Session 1999-2000), para 3 Back
Qs 41, 58, 91 Back
Qs 60-61, 63, 94 Back
Qs 57, 90 Back
Qs 83, 85, 88-89 Back
C&AG's Report, para 13 Back
8th Report of the Committee of Public Accounts, (HC
171, Session 1999-2000), paras 29-33 Back
C&AG's Report, paras 13, 3.6, 3.30 and Figure 14 Back
Qs 12-13 Back
C&G's Report, para 3.36 Back
8th Report of the Committee of Public Accounts, (HC
171, Session 1999-2000), para 3 Back