New Ofgem rules ban energy companies from increasing prices on fixed contracts

New rules for energy companies come into force today. They’re now banned from increasing prices on fixed-term energy tariffs, and they won’t be able to automatically roll you over to a new fixed-term contract.

Ofgem today announced that a number of new rules had come into force as a part of its Retail Market Review. Energy suppliers can no longer increase prices on fixed-term energy tariffs. And when you come to the end of your fixed-term contract, your supplier won’t be able to automatically roll you over to another tariff without contacting you about it first.

As with our campaign on price rises during fixed mobile phone contracts, we’ve always thought that fixed should mean fixed. We argued for these changes to the energy market since 2011, so we’re pleased to see Ofgem implementing these new rules.

In more good news, energy companies will also have to tell you that your fixed-term contract is coming to an end around 40 days before the end of the contract. And if you decide to switch during this notification period, your supplier won’t be able to charge you a termination fee (even if there was originally one in place!)

Energy deal price changes

However, the regulator will still allow variable price tariffs on a fixed-term basis, as long as any changes in price are set out in advance, on specific dates and with specific amounts.

We think there’s a danger with this, because you could lose out if you’re not fully aware of all the T&Cs. For example, there’s the potential for energy companies to try and tempt you with a low introductory rate and then hit you with a price rise in the winter, even if these were already listed in the small print.

Ultimately, we think Ofgem should have gone a step further. All fixed-term tariffs should be at a fixed price. We think that the only time where this is acceptable is if the fixed-term tariff is tracking an independent index, which the supplier has no control over.

Will Ofgem’s new rules make you more inclined to sign up to a fixed energy deal? Have you ever been automatically rolled over onto another fixed contract or had to pay a cancellation fee?

Comments

entente cordiale says:

25 October 2013

We’ve had to change supplier every year to get the best deal and to the best ofmy recollection we’ve never been rolled over to another fixed term tarridff. Instead, the energy companies have all put us on to one of their most expensive (they term it standard) deals. So I’m not sure the news is that momentous as far as I’m concerned.

T.F. - London says:

26 October 2013

I wasn’t aware that energy companies were previously allowed to increase prices on fixed price deals. I certainly don’t think such practice is common. For the past ten years I have fixed my price with one company or another including British Gas, Eon and EDF with terms varying from 6 years to two years. None of them has ever attempted to increase my fixed tariff.
Out of curiosity I have just examined the small print of my current fixed term tariff with EDF and it states clearly:
“The daily standing charge and unit rates of the tariff on the date of this statement are set out above and will apply until at least 31.03.2014 (the ‘End
Date’). They are fixed and will not increase until the End Date.”
I really cannot understand what all the fuss is about. Maybe the energy companies did have the legal right to implement rises in line with inflation but if so it was not a common practice.

Entente Cordiale says:

Yes, TF, I entirely agree. I do wonder whether the article might just be a tad naive in suggesting that this is a significant improvement. I’m also puzzled by the comment, “In more good news, energy companies will also have to tell you that your fixed-term contract is coming to an end around 40 days before the end of the contract. And if you decide to switch during this notification period, your supplier won’t be able to charge you a termination fee (even if there was originally one in place!)”. Every company that I’ve been with over the years has contacted me about this!!

Where the energy companies’ cartel (I use that word advisedly) make even more dosh out of us is by delaying the actual transfer well beyond the end of the fixed rate period, forcing us onto their considerably higher standard rate tariffs before moving us.

While I concur absolutely with your last paragraph as things stand, with the new rules I should in future be able to apply for the best new fixed contract around 40 days before the current one expires. That should avoid any standard rate tariffs, Previously of course I had to wait until the very last day of the contract or apply a bit earlier and try to guess how long the transfer would take knowing that if it happened too quickly I’d be penalised for leaving early. On the downside, though, this means I’ll end up leaving my current fixed tariff a few weeks too early to go to a new fixed contract that is bound to be at least a bit more expensive.

Ideally we should have the option to select and apply for a new tariff well before a fixed one expires and request a specific date for the transfer to take place.

John Ward says:

I suppose a cunning manipulator of household expenditure would reschedule [forwards or backwards depending on the balance of advantage] their washing and ironing and go easy on the dishwasher during the interim period between tariffs. This is a bit like wondering whether you get wetter running or walking while it’s raining – i.e. not worth losing sleep over. My change from BG to Coop energy two years ago took place quite a bit quicker than predicted so it’s hit and miss whether you come out on top.

Colin Grant says:

29 October 2013

Ofgem should increase competition in the market by banning Fixed Rate offers and Cancellation Fees. The former are predicated on the fear that prices will continue to rise (and consequently they do), and once we are on them, we stop looking for deals. The latter are simply anti-competitive, penalising the consumer who considers switching.

Price Comparison sites (eg U-switch) are trying to persuade us to go for Fixed Rate deals, when we could get our energy cheaper by going for a cheaper rate with no cancellation fees – I thought they were on the side of the consumer?

30 October 2013

I agree Colin Grant’s assertion regarding the need for increased competition in the market. I’m just not convinced that banning Fixed Rate offers would actually achieve this.

Let’s face it, there’s a very cosy cartel operating at the moment, whereby customers have to jump ship every year to another energy company in order to achieve the cheapest deal, thus giving the semblance but not the reality of genuine competition. In most business sectors, when you have privatised companies operating as a cartel and the key motivator for those companies is to maximise profit to the utmost because of their prime responsibility to shareholders, you have a recipe for continual price increases… there’s no way round it!

Then if you add in to the mix the government’s requirement for substantial price increases to cover the cost of colossally expensive nuclear energy, you have a recipe for whopping price increases every year ad infinitum.

The problem with going for contracts where the price is not fixed is that you are then open to swingeing price increases during the contract. The cartel nature of the energy business means that once one company puts their prices up, others can follow suit. It’s a nice little earner, isn’t it? And while ever Ofgem remains a toothless lapdog the situation will continue.

OK, so maybe banning Fixed Rate offers would not suit some who want ‘price security’, but they are already paying over the odds for fear of an increase. Stephen Fitzpatrick, the managing director of Ovo Energy claimed yesterday that for them, wholesale gas prices had not increased for 2 years. The charging of cancellation fees should be stopped, however, as this directly impacts on those wishing to change supplier.

As regards the Cartel, then I agree that is something that needs to be addressed – maybe start by separating the retailers from the wholesale suppliers?

“but they are already paying over the odds for fear of an increase” – not true at all. I always fix for at least two years and the tariffs I have chosen have always shown as no more than marginally above the lowest variable rate, even the lowest on one occasion. .

Between 2005 & 2010 I had a 5.5 year fixed rate tariff with BG that spanned at least 4 price increases and one very very small decrease, if I remember correctly. By 2006 my tariff was already cheaper than any variable rate available by then. I couldn’t believe that BG had been so stupid as to offer a fixed tariff for such a long period when it was obvious to me that prices would increase raidly over that time. Unfortunately neither they or any other members of the cartel have repeated that error since.

Yes, cancellation fees are, ethically speaking at least, highly questionable.

The trouble with destroying the cartel is that neither the energy companies nor the government would actually wish to see this happen (despite the government’s semblance of taking a high moral standpoint)!

Why not? I suspect, although I can’t prove, the following: The government knows the public will simply not accept the colossal costs of nuclear being borne by direct taxation so it smuggles these costs into the energy companies’ charges under the guise of a green levy, in return for which it agrees to turn a blind eye to a cartel arrangement. Thus the public still bear the cost but not in any way that redounds on the government! The shareholders are happy, the energy companies are happy, the public are ignorant, so everything’s fine. Simples!!

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