An energy company’s proposal to scrap default electricity and gas deals in favour of car insurance-style annual renewals could amount to a rebranding exercise and not help billpayers, a consumer group has said.
Scottish Power, one of the big six energy suppliers, said the Conservative election pledge to cap standard variable tariffs may harm competition. Its chief corporate officer, Keith Anderson, instead urged the government to take the “bold move” of abolishing the deals in favour of a product that needs renewing each year.
“Just as you insure your car every year and go to the market for the best deal for you, so every energy customer should engage with the market at least once a year to make sure they are on the best deal for them,” he said on Wednesday.
But charity Citizens Advice said the idea could, in practice, amount to a rebadging of standard variable tariffs, which households default to at the end of better value fixed-term deals.
“Setting targets to get loyal customers on to cheaper fixed deals would be a helpful step for suppliers to take,” said the charity’s chief executive, Gillian Guy. “But questions remain about what happens to customers’ bills when those deals end.
“Just abolishing the standard variable tariff could end up with it being recreated in all but name as the more expensive tariff that people are automatically rolled on to at the end of their fixed term.”
Anderson had suggested that all households be moved to fixed deals by the end of 2019, with price caps imposed on any companies that failed to meet this deadline.
Five of the big six have increased standard variable tariffs in recent months, with EDF raising them twice, prompting ministers to promise to save 17 million families £100 a year through a price cap.
Scottish Power’s alternative proposal, similar to one previously put to the Competition and Markets Authority (CMA) by British Gas, received a warmer reception from analysts, personal finance experts and comparison sites.
Martin Lewis, the founder of Money Saving Expert, said an annual “call to action” could increase engagement in the market for the two-thirds of people on standard variable tariffs. “I don’t think structurally this would be much different – the key is to make it behaviourally different,” he said.
Jon Ferris, the strategy director at Utilitywise, said the idea was an “interesting alternative”, but doubted that annual renewal letters would increase consumer engagement.
Customers who did not renew would end up on worse value default deals, he said, potentially returning the market to where it is now. “Does there then need to be some sort of of control on what that price can be? And you’re then back to some sort of regulatory price setting,” Ferris said.
Robert Buckley, an analyst at energy consultancy Cornwall, said the proposal was “definitely worthy of serious consideration” and could lead to more engagement from billpayers.
Comparison sites, which have a business model dependent on competition and people switching, said the Scottish Power idea was far better than a price cap.
Mark Todd of energyhelpline said: “I think this could be a big step in the right direction. The car insurance market is much more dynamic than energy, which this idea would mimic.”
Claire Osborne of uSwitch said it was crucial that the renewal letters were clear enough to trigger action from people. “This would help and be a step in [the] right direction, but on its own is not enough. All the CMA remedies would still need to be implemented to make it a good alternative to intervention [price caps].”
On Wednesday, the energy retail and generation businesses of Scottish Power, owned by Spain’s Iberdrola, posted a 73% fall in earnings before interest and tax to £47m in the first quarter.
Although the retail business modestly increased customer numbers to 5.5 million, earnings dropped to £81m, which the company blamed on increases in non-energy costs and mild weather. ScottishPower has the smallest percentage customers on standard variable tariffs among the big energy suppliers.