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In UK, Centrica Says Contracts Without End Date Should Be Banned

November 20,2017

Responding to government proposals for price caps, Centrica offered a number of proposals to improve the U.K. retail energy market and described various steps it is already taking to better serve customers.

Among other things, Centrica will unilaterally withdraw the Standard Variable Tariff (SVT) for new customers, in order to increase customer engagement:

"We believe that one of the main problems with the market is the ongoing nature ('evergreen', without an end date) of the SVT; so, British Gas will unilaterally withdraw the SVT and instead offer customers a choice of fixed term competitive tariffs. This follows Ofgem's recent changes permitting fixed term default tariffs. Encouraging customers regularly to select a new energy deal when their fixed contract ends will drive greater choice and competition. This will result in a broader range of better deals with fewer people on default tariffs. And if SVTs could be ended completely then the effects would be market-wide," Centrica said

As a result, Centrica will introduce a new fixed term default tariff. For any customer who does not make an active decision when their tariff ends, Centrica will introduce a 12-month emergency or default tariff with no exit fees.

Centrica will also engage customers on legacy Standard Variable Tariffs and offer them better deals. "We are keen to move all our customers off the SVT. We will contact all of our customers at least twice a year to encourage them to move away from the SVT. We have already made good progress having contacted all British Gas SVT customers in the first half of 2017, with 10% switching away from the SVT. For as long as customers remain on legacy SVTs we will ensure they continue to be priced competitively. We will publish the number of SVT and default customers we supply twice a year alongside our financial results," Centrica said

Centrica said that market rule changes are needed to help customers

Among Centrica's proposed changes is phasing out the SVT altogether and prohibiting all tariffs without an end-date

"Through changes to the licence conditions, Ofgem should prohibit tariffs without an end-date and force a market-wide phase-out of the SVT over a defined period. The 'evergreen' nature of the standard variable tariff acts as a disincentive to customer engagement. Eliminating tariffs without an end-date will encourage all customers to make a regular choice about which energy supplier and product is best for them," Centrica said

Centrica also sought more equitable treatment of suppliers with regards to obligations to fund support for vulnerable customers

Currently, the main two supplier obligations are called the Warm Home Discount (WHD) and Energy Company Obligation (ECO). Together, WHD and ECO add around £40 a year to most household energy bills.

Currently, only the larger energy suppliers are legally obliged to provide WHD and ECO. Smaller and medium-sized suppliers are exempt. Suppliers are obliged to provide WHD only once they reach 250,000 customer accounts. Centrica further said that, "Even when suppliers reach 250,000 customer accounts, they don’t have to meet the full obligation straightaway. It is phased in, at an increasing rate, until they reach 500,000 when they become liable for the full amount."

See the links below for more:

Centrica: Evolving our products and services to meet the changing needs of our customers

Centrica: Centrica sets out proposals to deliver a fairer and sustainable energy deal for customers

Centrica: Centrica proposals to reform UK Energy Market

Centrica   U.K.   Default Service  

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