Warning over new energy contracts
September 5, 2007
A gas and electricity supplier has been accused of trying to lock-in customers to a one year deal.
In August, regulator Ofgem abolished the rule under which all customers could switch suppliers, with just 28 days notice after they join.
Now a small energy firm called Utilita is offering a one year deal.
The change has been criticised by some price comparison websites, who claim it may prevent some customers from switching their suppliers.
Mark Todd, of Energyhelpline.com, said customers should watch out for small print in attractive deals.
"The emergence of the 'lock-in' deals is a worrying sign for consumers," he said.
"They will need to beware of onerous conditions which could tie them into uncompetitive deals, especially in the coming winter months, which are expected to bring further volatility on the wholesale markets."
Scott Byrom, at moneysupermarket.com, added: "The fear is rival energy suppliers will be tempted to mirror this move, thereby opening the floodgates for providers to impose long-term contracts."
Transparent
Utilita, a very small supplier with just 5,000 customers, dismissed these fears.
Its latest deal, launched last week, is for single or dual fuel at a fixed price for one year, and with a 7.5% rebate on the customer's account after that.
A spokeswoman said the contract was entirely transparent, and if the company passed on any wholesale price rises then the customers could walk away with no penalty.
"This is very competitively priced power," she said.
"Offering this choice is not going to damage the market."
British Gas was also accused of launching a lock-in deal.
But the company pointed out that its current offer - for a new boiler with £800 worth of free gas for a year - had nothing to do with the 28-day rule.
"There is no lock-in for the British Gas offer," said spokeswoman Claire Monaghan.
"When you buy an energy efficient boiler from us, we're offering a year's free gas to the value of £800.
"If you move home or change supplier during the year, you will be paid £305 as a one-off payment," she added.
Competition
The 28-day rule had existed since the start of competition in the gas and electricity supply industries, which began in 1996.
The aim was to stop suppliers stifling competition by preventing them from tying in their customers on long-term deals.
However, the regulator Ofgem changed its stance at the start of last month.
"Ofgem has removed this obligation, which may have been preventing suppliers from offering more sustainable energy services to customers to reduce their energy use under long-term supply contracts," it said at the time.
Nearly half of all gas and electricity customers in the UK have switched supplier at least once since the industry was liberalised after privatisation.
But a spokesman for Ofgem said the regulator "did not think that removing the rule would stop people switching".
He pointed out that suppliers had only succeeded in signing up about 6 million customers to longer term, capped-price deals by dropping the penalty clauses with which they were originally launched.
"It is not in their interests to stop people switching," he claimed.
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