THE BLOG
30/11/2017 15:05 GMT | Updated 30/11/2017 15:05 GMT

13 Million Households Could Be Unknowingly On Worst-Value Energy Tariffs

Big energy companies are facing a regulatory crackdown after Dermot Nolan, the Ofgem chief executive said companies had failed to act quickly enough and should move faster to take customers off standard variable tariffs.

A standard variable tariff (SVT) is a supply contract with an indefinite length that does not have a fixed-term applying to the terms and conditions. It’s an energy supplier’s basic offer. If a customer does not choose a specific energy plan, for example after their fixed tariff ends, they are moved to an SVT until they choose a new one.

Nolan said that while two million fewer customers were on standard variable tariffs than a year ago, the market was still not working as well as it should. In fact, Ofgem estimates about two-thirds of households are still affected by these worst-value tariffs.

This represents a huge body of work for the sector. Investigating whether the communications from utilities providers had been effective in informing people of the need to move away from SVTs, Wiraya’s recent study of 2,000 UK based residents revealed just 17% are actually aware they are affected.

As the country heads into another cold winter with expensive tariffs in place and price caps yet to take effect, vulnerable age groups both young and old are preparing to layer up rather than turn the heating on.

Tariffs or price caps, communication is key

The over 65s market is the worst affected. While over a quarter of over 65s are aware they are currently on a standard variable tariff, 45% of this demographic state they don’t know or can’t name a means of communication by which their energy provider informs them of their tariff options.

By comparison, 62% are aware of the government plans to introduce price caps on energy provision and over half of these respondents are in a position where they will be directly affected by the plans.

Centrica, British Gas’s owner, has told the business select committee that it wants to see the death of the standard variable tariff rather than the implementation of a price cap. “In our view there is an issue with engagement but we don’t think the solution is price caps, we think price caps will hinder competition,” said Sarwjit Sambhi, the managing director of Centrica’s home unit, which includes British Gas. “Our proposal is to end the evergreen nature of the standard variable tariff.”

To avoid price caps, the task for providers is all about creating truly effective communication with customers. There’s plenty of value these customers can see in an effective relationship with their utilities provider, but this hinges on the company knowing the right channels to engage, inform and ultimately activate customers to make the right tariff decision.

Setting priorities straight

Intriguingly, while smaller energy companies have told MPs that, contrary to what Centrica has argued, a cap is “essential” for stopping suppliers exploiting customers, price is among the less immediate reputational concerns facing utilities providers.

While 18% of consumers agree that their provider is value for money, support drops below a tenth when asked if they value their provider because they are honest and also when assessing proactivity.

As a result, just 14% of customers over 65 say they are being advised on their energy bill by their provider. Similarly, one in ten UK residents under 25 say can depend on their provider. Instead, parents, children and friends are the go to for people within these demographics. Sadly, another third state they have nobody to turn to.

The tools and automation technologies now exist to make the process of identifying the right means of engaging specific audiences. It is far easier than it’s ever been before across any given channel. There is now an enormous opportunity in this highly competitive space, to take a proactive step forward and lead a reputational change.