7th Report - Protecting consumers: Making energy price comparison websites transparent - Energy and Climate Change Contents

2  Our findings

8. Consumer confidence in the energy sector and trust in energy suppliers has been low for a number of years. Price comparison websites play an important role in helping consumers shop around for tariffs that best suit their energy needs and those that have never switched suppliers are often able to make significant savings on their energy bills. However, in order to fulfil their role as facilitators of energy switching, these websites must be trusted by consumers and be seen to be operating in a transparent way.

9. We were alarmed by reports in the press over the past few months alleging that consumers had been misled by some of these websites "hiding"[9] deals, particularly if these reports have damaged consumer trust-both in the price comparison websites and the switching process more generally. We heard from the major price comparison websites that these reports were "based on research from a commercial competitor who obviously has their own commercial interest that they are trying to push".[10] The website energyhelpline told us that "the accusations particularly in the media have tended to be sweeping and inaccurate as not all services are as they have painted".[11] MoneySavingExpert added that "to tar all [websites] with the same brush is unfair and risks creating a misleading impression".[12] We recognise that there are a range of practices across different websites, however, the written evidence we received suggests that the concerns raised in recent months are not limited to commercial competitors.

10. There have been a number of issues raised about the practices of some price comparison websites. We are particularly concerned by reports about:

i)  the default presentation of deals by some websites (i.e. commission only deals versus a full market view);

ii)  the misleading language used to provide consumers with a choice of which presentation to pick;

iii)  the lack of transparency about commission arrangements; and

iv)  the inadequate arrangements for regulatory oversight.

We stress that these concerns do not apply across all price comparison websites as there are a range of practices across different websites—for example, some websites already default to a full market view.

Default presentation of deals and leading language

11. The consumer experience of using a price comparison website may vary depending on the site chosen. After entering some personal data—and possibly some information about energy usage history or other personal preferences—consumers may either be presented with a tariff results page, or an option of how to view the results. Of those websites that direct consumers directly to the results page, some websites default to a limited view-showing only the tariffs and deals for which they receive commission, while others default to a full market view-showing all deals regardless of commission arrangements. Of those websites that offer a choice of views to consumer before displaying the results page, the language varies and can often be misleading, as it is not always clear what choice consumers are being asked to make. We heard about the approaches used by a number of websites-and in some cases how these approaches have changed in response to recent concerns:

·  energyhelpline has consistently shown all the deals in the market from every supplier by default-regardless of commission arrangements.[13]

·  Which? recently moved to a system that shows all deals to all users by default.[14]

·  EnergyLinx also now defaults to a whole of market comparison.[15]

·  Compare the Market shows users the tariffs they receive a commission from as default. Previously it had a four step process to reveal all the tariffs. It has now changed that process to just one step having added a much more visible button to the top of its results page.[16]

·  Until recently the option presented by uSwitch was a "yes" or "no" response to the question "show plans we can switch you to today". This was changed earlier this year to an option for users to choose between the two statements: "only show me plans uSwitch can help me switch to" or "show me the whole market". uSwitch does not pre-select a default answer and we were told there is "clear explanatory text next to this question".[17]

·  MoneySuperMarket previously presented the question "show energy deals we can switch you to today?"-with the response "yes" pre-selected. It recently removed the "today button" and now defaults to a full market view.[18]

·  Similarly, Confused also previously presented the statement "show me tariffs I can switch to today"-with the response "yes" pre-selected. It also recently removed the "today button" and now defaults to a full market view.[19]

·  Go Compare previously showed users the tariffs they receive a commission from as default. It had a two-step process to reveal all the tariffs.[20] It now explains that "You will not be able to switch through our site for a few suppliers that don't pay us a commission or won't offer certain tariffs on comparison sites, but you will still be able to see their prices by selecting the 'all tariffs' option below". It then presents the options: "show me tariffs I can switch through Gocompare.com" or "show me all tariffs".[21]

The changes described above go some way to improving the consumer experience. Many of these were introduced by the websites in the aftermath of the press coverage highlighting poor practices and following the announcement of our inquiry.

12. EDF Energy told us that its consumer research "showed that consumers felt it was disingenuous to select "no" [when presented with a 'switch today' option] and that consumers did not realise that this narrowed the search criteria".[22] We questioned the five major comparison websites about the misleading language that has previously been used and in some cases is still being used. We were shocked by their reluctance to accept that this was confusing to website users and by their apparent lack of concern about consumers who had been influenced by the websites to sign up to tariffs which were not the best available but rather the ones which paid to the website the biggest commission.[23]

13. Citizens Advice told us that "consumers should be able to see all the market (as a default) and if they would like to filter their results then they should make a proactive choice to do so".[24] British Gas agreed.[25] As set out in paragraph 6, Ofgem's revised Confidence Code will soon require accredited websites to show all tariffs available in the market unless customers actively choose to select to see a smaller number of tariffs. It also sets out that clear wording must be used and this wording must be approved by Ofgem. However, not all websites are eligible to apply for accreditation (see paragraph 23).

14. We conclude that all energy price comparison websites should show as default all deals available in the energy market-regardless of any commission arrangements between the sites and the suppliers. We strongly object to the use of leading language used by some websites which can only be interpreted as a deliberate and underhanded attempt to hide deals.

15. In addition to consumers' experience of the websites themselves, EDF Energy noted that "there is further potential for consumer misunderstanding on the basis of tariff comparisons presented through the telesales channels operated alongside the [price comparison websites]".[26] The Big Deal also highlighted misleading telesales conversations.[27] We were concerned that consumers choosing telesales services may be missing out on cheaper deals. We raised this in our oral evidence session with the five major websites and Paul Galligan, Managing Director of Compare the Market, told us that:

    We made it clear on the call that we would be comparing for that customer deals that were available to switch via Compare the Market. Secondly on the call the consumer outlined that he did not like using the website. He had tried our website and preferred to use the telesales channel. [… The cheaper energy supplier did] not offer a telesales service.[28]

We questioned Mr Galligan about whether it was possible to warn consumers that by using the telesales services they may be missing out on cheaper deals. He responded, "We do tell them that we will be comparing them with deals to which we can switch. […] We want to make sure and, indeed, we will only be successful if we make it easy for people to find the best deal for them. I believe in this case we were clear to the consumer and we offered him the cheapest available tariff over the phone from any provider".[29] Mr Galligan subsequently provided us with the full transcript of the phone call which showed that the telesales agent stated earlier in the call, "I am now comparing your prices with a wide range of suppliers available through CompareTheMarket.com to see how much you can save on your energy bills".[30] However, at no point was the caller explicitly told that a cheaper deal would be available if they would be willing to use the website to switch rather than the telesales service. In fact the caller explained they were interested in "the cheapest deal possible" and was wrongly informed it "is the cheapest and has the best customer service".[31]

16. In October 2014, Citizens Advice wrote to Ofgem:

    The Confidence Code only applies to online price comparisons and not to the telesales operations run by the accredited sites. As a minimum, we would like consumers to receive the same level of protection and access to redress regardless of how they engaged with a [third party intermediary].[32]

17. Price comparison websites should be clearer in the language their sales staff use over the phone when explaining which deals are available-particularly when consumers may not be aware that cheaper deals may be available to them via another route. We consider that consumers should receive the same level of protection and access to redress regardless of how they engaged with a third party intermediary when switching energy supplier. We recommend that Ofgem extend requirements relating to transparency and accuracy of price comparison websites to cover telesales activity, collective switching schemes and face-to-face sales.

Transparency of commission arrangements

18. Citizens Advice told us that consumers are unsure about how price comparison websites operate and how they make a profit.[33] Phil Morgan, Chief Finance and Operating Officer at Go Compare, told us that:

    Every pound of profit we make is based on a customer saving money. We only receive income if a customer buys a policy or an energy deal from the end supplier, so basically our profit is predicated on the consumer and end customer saving money.[34]

Peter Plumb, Chief Executive of MoneySuperMarket, added that "as an industry we do need to be profitable to continue to deliver a service to help the 50% of customers that Ofgem tell us are on standard tariffs and have never switched and tomorrow could each save £250".[35] Martin Coriat, Chief Executive of Confused, explained that "at Confused.com [...] we make very little profit on energy; we just take the commission to fuel getting more people switching".[36]

19. Rates of commission received by the different websites from different suppliers vary. MoneySuperMarket and uSwitch (which each run their own in-house comparison calculator) receive approximately £27-30 commission per switch and approximately £54-60 per dual fuel (gas and electricity) switch.[37] Confused, Compare the Market and Go Compare (which each work with a "white label"[38] partner that provides the underlying comparison calculator for them) receive approximately £22-23 commission per switch and approximately £44-46 per dual fuel (gas and electricity) switch.[39] Mr Plumb explained that "A white label model […] takes a smaller commission because it is not the whole chain and somebody else in the chain takes some commission".[40]

20. Average rates of commission are not always published on price comparison websites and none disclose what their commission is from each supplier or for each transaction.[41] Martin Coriat told us that he was not in favour of disclosing to the customer at the point of switch how much commission is earned by the website.[42] He explained that:

    We spend a lot of time trying to make things simpler for customers, trying to give them a lot of information in one screen and sometimes on mobiles or tablets. It is a challenge to give all the information we have to communicate to customers. I think adding information would confuse customers and I don't think it will bring any more confidence in our service.[43]

However we did hear from British Gas that:

    Comparison sites currently provide a list of the suppliers that they have a commission agreement with, however some switching sites make this information easier to find than others. We believe it is in the consumer interest for sites to make clear that a commission arrangement exists and how commission will affect the comparison process before the results page is delivered. This could be achieved by sites explaining on their homepage how commercial arrangements with suppliers may alter the results page.[44]

21. Ofgem's revised Confidence Code (see paragraph 6) requires greater transparency of commission arrangements. The revised wording of the code, which is out for consultation between 30 January and 27 February 2015, states that accredited sites should display "a single list which identifies all suppliers from whom the Service Provider receives a commission. The list […] must be prominently displayed, or be accessible from a prominent and clearly-labelled link, during the Consumer Journey".[45]

22. Price comparison websites provide a service to consumers that helps them save money on their energy bills. It is right that they should be able to operate in a profitable way. We have no objection to commission being paid by suppliers to price comparison websites as long as these arrangements are clearly disclosed. We welcome Ofgem's drive for greater transparency of commission arrangements. Ofgem should also consult on the merits of requiring price comparison websites and other third party intermediaries to disclose-at the point of sale-the exact amount of commission received for each switch.

Regulatory oversight of the websites

23. We have referred to the Confidence Code, Ofgem's voluntary code of practice, which governs price comparison websites that use their own comparison calculator. Websites such as Confused, Compare the Market and Go Compare (which each work with a "white label" partner that provides the underlying comparison calculator for them) are not eligible to apply for accreditation under the Confidence Code. In the same way that requirements relating to transparency and accuracy of price comparison websites should cover other methods of engagement with consumers (e.g. telesales activity, see paragraph 17), these requirements should also apply to the full range of price comparison website-including those that work with a "white label" partner.

24. In January, Dermot Nolan, CEO of Ofgem, told us that the consequence for non-compliance with the Confidence Code-both in its current and revised form-would be that accredited websites would lose their accreditation.[46] Mr Nolan explained that:

    These sites are not licensees. We have no statutory powers over them. We simply accredit them on the grounds that we hope there is some value to our accreditation and that consumers will trust it. Thus, as they are not licensees, we will immediately withdraw accreditation if we feel that they are breaching our code, but they will still be able to continue as a site.[47]

However, Citizens Advice told us that consumer awareness of Ofgem's accreditation scheme was low (at 16% for customers that use price comparison websites) and that consumers were likely to be "driven to [websites] with big advertising budgets which are not necessarily accredited".[48]

25. Citizens Advice and First Utility suggested that Ofgem could introduce a new licence requirement (under Supply Licence Conditions) on energy suppliers that oblige them to only deal with Confidence Code accredited sites.[49] We heard from the Government that:

    In the Energy Act 2013 Government clarified that Ofgem is able to apply to the Secretary of State to make the activities of [price comparison websites] and other Third Party Intermediaries (TPIs) licensable. Government did this to ensure that Ofgem are able to move swiftly should their monitoring of the market suggest substantive cross cutting concerns which would require such significant regulatory intervention. Ofgem have not yet made such an application, though it continues to monitor the development of the TPI market to be able to identify when and what regulatory interventions are required.[50]

Phil Morgan, Chief Finance and Operating Officer at Go Compare, expressed concerns about "the burden on Ofgem of administrating a licence-based confidence code and in particular the expansion of it and how they conduct the audit to make sure they are adequately resourced to look after an expanded market. [However,] if those could be thought through then I see no issue with [a licence-based system]".[51] Steve Weller, Chief Executive of uSwitch, added that:

    We have always been supportive of Ofgem and we believe having a code, whether it is licensed or whether it is stipulated on all companies to follow, if it improves the strict guidelines that they have laid down and gets to a high-level standard for consumers then that would be a good thing and we would welcome that.[52]

26. The current hands-off approach of a voluntary code of practice that few consumers have heard of is clearly not working. However, we recognise that there would be a cost associated with a licence-based system to help Ofgem regulate energy price comparison websites and other third party intermediaries and that the companies might attempt to pass this on to consumers. We recommend that Ofgem urgently carry out a full impact assessment of moving to a licence-based system for price comparison websites or alternatively a licence requirement on energy suppliers to use only Ofgem accredited websites, paying particular attention to ensuring that any proposed changes are in the best interest of consumers.

9   The Sun, The great switch stitch-up, 20 October 2015 Back

10   Q128 (Paul Galligan) Back

11   energyhelpline (EPW0001) Back

12   Open letter to the Committee from Martin Lewis, Founder and editor, MoneySavingExpert.com, 6 February 2015 Back

13   energyhelpline (EPW0001) Back

14   The Big Deal (EPW0012) Back

15   The Big Deal (EPW0012) Back

16   The Big Deal (EPW0012) Back

17   Qq 60-61 (Steve Weller); uSwitch.com (EPW0007) Back

18   MoneySuperMarket.com (EPW0016), The Big Deal (EPW0012) and The Big Deal, Letter to price comparison websites, 20 October 2014 Back

19   The Big Deal (EPW0012) and The Big Deal, Letter to price comparison websites, 20 October 2014 Back

20   The Big Deal (EPW0012) and The Big Deal, Letter to price comparison websites, 20 October 2014 Back

21   https://energy.gocompare.com/helpmeestimate (accessed 11 February 2015) Back

22   EDF Energy (EPW0013) Back

23   Qq60-64 (Steve Weller); Qq75-95 (Peter Plumb, Steve Weller, Paul Galligan, Martin Coriat, and Phil Morgan) Back

24   Citizens Advice Service (EPW0004) Back

25   British Gas (EPW0005) Back

26   EDF Energy (EPW0013) Back

27   The Big Deal blog, Price comparison sites caught lying, 2 February 2015 Back

28   Q50 (Paul Galligan) Back

29   Q52 (Paul Galligan) Back

30   Annex I to letter from Paul Galligan, dated 10 February 2015 Back

31   Annex I to letter from Paul Galligan, dated 10 February 2015 Back

32   Letter from Citizens Advice to Barry Coughlan, Domestic Retail Policy, Ofgem, dated 2 October 2014 Back

33   Citizens Advice Service (EPW0004) Back

34   Q 34 (Phil Morgan) Back

35   Q104 (Peter Plumb) Back

36   Q158 (Martin Coriat) Back

37   Qq134-135 (Peter Plumb, Steve Weller), Qq178-179 (Peter Plumb), Q180 Back

38   A white label provider is an organisation that does not hold a supply licence but instead works in partnership with a licensed supplier to offer gas and electricity using its own brand. Back

39   Q135 (Paul Galligan, Martin Coriat, Phil Morgan), Q180 Back

40   Q169 (Peter Plumb) Back

41   The Big Deal (EPW0012) Back

42   Q168 (Martin Coriat) Back

43   Q168 (Martin Coriat) Back

44   British Gas (EPW0005) Back

45   Ofgem, Consultation on proposed drafting for the Confidence Code to reflect January 2015 policy changes, 30 January 2015 Back

46   Energy and Climate Change Committee, Oral evidence: Ofgem Annual Report and Accounts 2013-14, HC 932, Tuesday 27 January 2015 Back

47   Energy and Climate Change Committee, Oral evidence: Ofgem Annual Report and Accounts 2013-14, HC 932, Tuesday 27 January 2015 Back

48   Citizens Advice Service (EPW0004) Back

49   Citizens Advice Service (EPW0004), First Utility (EPW0006) Back

50   DECC (EPW0015) Back

51   Q188 (Phil Morgan) Back

52   Q189 (Steve Weller) Back

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© Parliamentary copyright 2015
Prepared 28 February 2015