Gas and Electricity Competition… Who Benefits?

Author:

William Baker

Organisation:

Centre for Sustainable Energy (CSE)

Co-funded by Transco

Centrica

Scottish Power

Ofgem and the Electricity Association

Date: 1999
Location:

Rationale

Full liberalisation of the UK gas markets occurred in 1998, preceded by a pilot phase operating in South West England from 1996. Research into the impact of competition on low-income households during the pilot stage demonstrated that certain groups – households using prepayment meters and those without bank accounts or wanting to pay in cash, plus consumers with special needs – were losing out. In 1999, the electricity markets were fully opened to competition.

Key research Question

The study aimed to ascertain whether the conclusions of the earlier research were being replicated on a national scale and whether the lessons gained during the pilot were leading to any changes as competition was rolled out across the UK. Using the data gathered, it considered what the implications are for energy companies, regulators and policy-makers and how these may be handled.

Summary of activity

Four hundred low-income households across the UK were recruited through local energy, welfare rights and fuel rights advice centres (with targeted recruitment of older people, individuals with disabilities and lone parents to reflect the national composition of the low-income cohort) to a national panel. Panel members were interviewed on five separate occasions using a structured questionnaire; the first four rounds of interviews were telephone-based. The questions collected data on demographic characteristics (e.g. age, employment status, size of household and income), as well as property type, heating set-up and fuel mix, experiences of switching, payment methods and energy advice.

Methodologies

Householder surveys

Primary data

Findings

Fieldwork results were published during the project in a quarterly ‘Competition Monitor Bulletin’. The report outlined the findings to date, anticipating a full analysis in a second end-of-project publication.

The data suggested that the issues identified in the pilot were also occurring on a national scale. Customers on direct debits were benefiting more from competition than those on prepayment meters or those paying cash, which disproportionately affected low-income households. However, competition was providing some benefits for this group. For example, the majority of those on prepayment meters or those who paid by cash who changed their gas supplier moved to direct debit. Doorstep selling was seen as the most successful way of getting people to switch; nevertheless, only a minority of panel members had actually switched gas supplier (or had explored the option). Levels of switching differed by region, with those in the North East of England most likely to do so and those in North West England least likely. While only a small number of interviewees were in arrears, many were on prepayment or cash options and/or lived in hard-to-heat homes. Nonetheless, the report cautioned that low-income households are heterogeneous and should not be treated as a uniform group.

The report concluded that the performance of suppliers when it came to energy advice was fairly poor, with only one in five interviewees stating they had received information on energy savings. There was low awareness of particular assistance schemes for older and disabled people among eligible panel members, and very few of those in arrears asserted that they had been offered energy efficiency advice. Most panel members preferred to approach independent sources of advice.

Recommendations

To address the challenges raised in the findings, it is recommended that suppliers ensure that mechanisms are put in place to ensure that those customers who wish to remain on prepayment meters and those who wish to continue paying by cash are able to switch supplier in order to access the benefits of competition. Options could include obligations upon suppliers to offer meters and flexible cash payments at no extra cost. Alongside this, suppliers and the regulator should continue to explore ways of increasing access to bank accounts and how they can support other facilities such as credit unions.

The regulator and energy companies must maximise opportunities to target vulnerable customers with high-quality advice on issues such as debt counselling, suitable payment methods and energy efficiency by using existing client records more effectively. Gas prepayment customers should be targeted with bespoke energy efficiency programmes. Better partnership working can assist this, but suppliers must be monitored to ensure they continue to deliver additional services to older and disabled users. Debt prevention should be a primary motivation to act, and programmes designed to alleviate debt ought to include energy efficiency. Specific proposals to reduce the risk of indebtedness include expanding the eligibility criteria for Fuel Direct.

The energy advice available to households must be comprehensive but at the same time accessible. A review of suppliers’ role in providing energy advice should be undertaken to consider the effectiveness of their current offer and identify where best practice exists.

Other themes