Power companies no longer restricted in placing customers under obligation to stay

02 August 2007
Energy regulator Ofgem has removed the restriction that prevented power companies from forcing their customers into long-term agreements, reports SimplySwitch.com.

Companies are no longer obligated to allow customers to sign up for just four weeks, Ofgem says, in order to encourage providers to introduce more energy efficient measures and install smart meters into consumers’ homes.

It was the argument of the energy companies that it was not cost-efficient for them to install energy-efficient equipment into people’s homes because they could switch to another provider four weeks later and get a better deal.

Now that these no-obligation tariffs are a thing of the past, customers will now be restricted in flitting from one energy provider to another in pursuit of the cheapest offers.

“We have fixed in place protection to ensure that vulnerable customers are well served by the market while clearing the decks to allow innovation. We look now to the companies to respond,” said Ofgem Chief Executive Alistair Buchanan.

“The Supply Licence Review is a model piece of regulation, taking out unneeded legacies from the early days of privatisation, improving the clarity of what is kept - all to the potential benefit of customers, industry and the environment.”

But Karen Darby, founder of price comparison and switching service SimplySwitch.com, says the move could prove costly for consumers.

“From a consumer’s perspective this is a worrying move by Ofgem,” she said.

“Switching suppliers has led to the competitive market that we enjoy today and any move that leads to onerous contract conditions is unwelcome.

“We’ve seen in other markets contracts of 18 months and more introduced and this inhibits people’s ability to find a better deal. The ruling is likely to have come about to help suppliers recoup the capital costs of installing smart meters and energy efficiency measures in customers’ homes. It is likely that they will introduce longer term contracts and we suspect that once one supplier acts, others from the ‘big six’ will follow.

Ms Darby continued to say that while Britons want to do what they can to help the environment, their foremost concern is value for money and to not be tied down to an uncompetitive tariff which could constrict consumer choice.

SimplySwitch recommends checking now to ensure that you are on the most competitive tariff available, before the energy companies start extending contracts and the competitiveness of the industry to which people have become accustomed is called into question.

Learn more about how to compare gas and electricity prices