Memorandum submitted by Ofgem (EC 5)
Energy Price Differentials
1) Ofgem's 2008 probe into the energy
supply market highlighted that the market generally works well
for most consumers. However our initial findings did note that
there were some flaws in the retail market that required addressing.
Ofgem therefore announced a package of remedies to improve the
working of the retail market for consumers and small businesses.
Consultation on this package will end in May with the aim of having
all rule changes in place by this Autumn.
2) As part of this package Ofgem has announced
that it is minded to introduce two new licence conditions on suppliers
to address unfair price differentials:
— Licence condition A: will require any
difference in the terms and conditions offered in respect of different
payment methods to be cost reflective; and
— Licence condition B: will prohibit undue
discrimination in any terms and conditions offered to consumers,
with a sunset clause of three years.
3) Ofgem's purpose in introducing Licence
Condition A is to address the detriment caused to consumers as
a result of non-cost reflective differentials in payment methods
applied by gas and electricity suppliers in the GB retail market.
Additionally Ofgem is introducing Licence Condition
B to address other situations in which certain consumers may be
losing out by reason of their inability to access (or difficulty
in assessing) the same supply terms and conditions as other consumers.
Licence Condition B will operate during a fixed interim period
of only three years to allow the rest of the Probe Remedies Package
to take effect.
4) As part of the consultation package,
we released an initial consultation on addressing undue price
differentials on 8 January 2009. Following on from this consultation
and taking into account responses received to this consultation,
on Wednesday (15 April) we released, our Final Proposals
and an accompanying Impact Assessment.
5) In the Impact Assessment document we
include our estimate of average differentials between prepayment
and direct debit prices, comparing January 2008 with the
latest prices (April 2009). The tables can be found below and
on page 8 of the document. As you will see the average differential
has fallen significantly for electricity, gas and dual fuel. Our
estimate of the average dual fuel differential now stands at £100 and
is very similar to the figure used by Mr Anderson.
WEIGHTED AVERAGE DIFFERENTIALS BETWEEN PPM AND DD
PRICES (£/CUSTOMER/YEAR)
| Jan-08 | Apr-09
| Change |
| Gas | 94 | 58
| -36 |
| Electricity | 38 | 25
| -13 |
| Dual Fuel | 133 | 100
| -34 |
Note: Change may not sum to difference due to rounding.
6) You also asked for data on the price differentials
for standard credit and direct debit. Our Impact Assessment also
included the following tables, which can be found on page 7:
WEIGHTED AVERAGE DIFFERENTIALS BETWEEN SC AND DD PRICES WITHOUT
PROMPT PAYMENT DISCOUNTS (£/CUSTOMER/YEAR)
| Jan-08 | Apr-09
| Change |
| Gas | 52 | 41
| -11 |
| Electricity | 20 | 29
| 9 |
| Dual Fuel | 68 | 82
| 14 |
WEIGHTED AVERAGE DIFFERENTIALS BETWEEN SC AND DD PRICES WITH PROMPT
PAYMENT DISCOUNTS (£/CUSTOMER/YEAR)
| Apr-08* | Apr-09
| Change |
| Gas | 56 | 21
| -35 |
| Electricty | 13 | 16
| 3 |
| Dual Fuel | 76 | 50
| -26 |
*Please note Information not available for prompt payment discounts
in January 2008
7) On the next page, as requested, are the price differentials,
between PPM, DD and SC, for the big six suppliers. As you can
see the gap between DD and PPM for dual fuel customers falls between
£42 (E.ON) and £106 (BG & ScottishPower).
If licence condition A is brought into force following consultation
or reference to the Competition Commission, Ofgem will closely
monitor compliance with the licence condition. In enforcing assessment
of whether payment method differentials are cost reflective (Licence
condition A), Ofgem's approach, as laid out in the proposed guidelines,
will be flexible and each case will be looked at, where necessary,
on the basis of individual suppliers' pricing and costs.
If we find there are serious instances of non-compliance
we will consider enforcement action. This could result in fines
of up to 10% of turnover.
PPM-DD Differentials—April 09
| £/customer/yr | Elec
| Gas | Dual Fuel
|
| British Gas | 33 | 67
| 106 |
| E.ON | 27 | 49
| 101 |
| EDF Energy | 8 | 28
| 42 |
| npower | 21 | 21
| 105 |
| ScottishPower | 34 | 62
| 106 |
| SSE | 20 | 54
| 98 |
Based on annual consumption of 3300kWh/yr electricity, 20500kWh/yr
gas
SC-DD Differentials (not including prompt pay discounts for
SC customers)—April 09
| £/customer/yr | Elec
| Gas | Dual Fuel
|
| British Gas | 40 | 35
| 75 |
| E.ON | 27 | 49
| 101 |
| EDF Energy | 8 | 17
| 42 |
| npower | 21 | 21
| 105 |
| ScottishPower | 64 | 141
| 206 |
| SSE | 20 | 35
| 55 |
Based on annual consumption of 3300kWh/yr electricity, 20500kWh/yr
gas
SC-DD Differentials (including prompt pay discounts for SC
customers)—April 09
| £/customer/yr | Elec
| Gas | Dual Fuel
|
| British Gas | 25 | 20
| 45 |
| E.ON | 13 | 24
| 63 |
| EDF Energy | 8 | 17
| 42 |
| npower | 21 | 21
| 105 |
| ScottishPower | 14 | 41
| 56 |
| SSE | 9 | 16
| 25 |
Based on annual consumption of 3300kWh/yr electricity, 20500kWh/yr
gas
March 2009
| 
