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Author: Peter Watson Article source: http://www.articlealley.com/. Used with author's permission.
Energy customers face being forced into year-long contracts similar to those in the broadband and mobile phone markets, after a key rule which allowed them to move to a new provider within 28 days was scrapped by the utility watchdog.
The new regulations were introduced by Ofgem, the energy regulator, in August 2007 following lobbying by utilities providers. In the past year or so, rocketing energy prices have meant more and more consumers are using price comparison sites to find cheaper deals.
But providers claimed that unless customers are prepared to stick with a contract for more than 28 days, there is less motivation for the company concerned to install energy-efficient equipment, such as new boilers and loft insulation.
But many experts believe that customers may simply find themselves forced into long-term contracts, while the supposed benefits will not materialise that easily.
Commenting on Ofgem's decision to axe the 28-day rule, Scott Byrom, utilities expert at moneysupermarket.com, the price comparison website, said:
''[i]This is a disaster for the consumer. Ofgem has stripped any leverage the consumer had and given all of the power to the big six energy providers. According to Ofgem, protecting consumers is its first priority - this is clearly not the case here. Ofgem goes on to say it promotes competition but this is, without doubt, an anti-competitive move.''
''If an energy provider annoys you after a couple of months or a rival drops its prices, you want the power to be able to move, not to be stuck with your provider for a year.[/i]''
Although the abolishment of the 28-day rule could give incentives to suppliers to make homes more energy-efficient, and to offer a greater choice of tariffs, these will no doubt have a host of conditions attached, such as exit fees for customers wanting to switch before their contract has expired.
Like the broadband and mobile phone markets, the best deals will invariably go to new customers, leaving those loyal to the company paying far more.
Customers looking to compare gas and electricity prices in the near future need to make sure they know just what kind of contract they're committing to before signing up.
With the scrapping of the 28-day rule comes uncertainty. For example, which of the big energy companies will take the risk of setting up a contract first, and if an energy supplier wants to keep hold of the customer for another year, then energy-saving incentives will no doubt have to be put in place, as well as keeping gas and electricity prices at a minimum.
Such energy-saving incentives might be offered by the energy provider, by supplying the customer with literature on saving energy, and offering services free and/or discounts to affordable insulation products, thus theoretically consumers pay less on their bills. It is with these incentives in mind that gas and electric suppliers need to think about the role they play in relation to climate change and the environment.
With an increasing amount of awareness about climate change, consumers are looking to help protect the environment. Yet this won't come without a price, because even if energy companies do provide energy-saving products, the consumer could end up having to pay certain product and installation costs, as well as a surveyor to check that whatever work has been carried out, meets the safety requirements of the law.
It is only a matter of time before the big energy companies use the 28-day rule and quash any hopes of competition for the smaller companies. Maybe then Ofgem may find out that it has made a grave mistake, and will need to review its recent decision.
For the time being, it is highly unlikely that people will stop switching their gas and electricity suppliers, if anything, the amount of people switching could increase so as to get a better deal, certainly in the short-term, as they rush to avoid longer contracts.
If consumers are looking to change their gas and electric supplier before the full force of the 28 day ruling, I recommend using a price comparison website to get the best deal they can.
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