OFGEM Case Study 1-Automatic rollovers and contract renewals

Statutory Consultation on non-domestic automatic rollovers and contract renewals

https://www.ofgem.gov.uk/publications-and-updates/statutory-consultation-non-domestic-automatic-rollovers-and-contract-renewals

 On 30 July 2014 Ofgem published a statutory consultation on standardising the contract renewal process for micro-business consumers and increasing the amount of information in renewal letters (the July consultation). Ofgem decided that, as proposed, it will modify the gas and electricity supply licences by amending standard licence condition (SLC) 1 and SLC 7A. The overall effect of these modifications will require suppliers to:

  • allow micro-business consumers to give notice to terminate a contract no more than 30 days before a contract ends
  • provide current prices and annual consumption details on renewal letters for microbusiness fixed-term contracts, and
  • acknowledge a termination notice from a micro-business consumer within five working days of receipt, or as soon as reasonably practical after that.

All of the changes took effect on 30 April 2015.

The Authority’s decision

Having considered the responses to the July consultation, the Authority has decided to proceed with the modifications to the gas and electricity supply licences by amending SLC 1 and SLC 7A. The amendments to SLC 1 and 7A will take effect on 30 April 2015.

For contracts entered into before 30 April 2015, the maximum 30-day notice period (SLC 7A.6, 7A.11 and 7A.14) will apply when a micro-business consumer enters a new contract, or if a contract is extended in any way.

Notices to modify the standard conditions of all electricity and gas supply licences have been sent to all relevant licensees. They are also published on our website alongside this letter.

Maximum 30-day termination notice period

Most respondents supported this change. Two suppliers warned that letting consumers give only 30 days’ notice of changing supplier risks placing them on deemed or out-of-contract rates if there were any delays to the switching process.

Although we acknowledge this risk, we believe it will be mitigated by recent changes to reduce switching times. We have strengthened the licence requirements for three-week switching from 1 September 20146 and we have approved industry changes to further reduce switching times by the end of this year.7

The licence drafting is unchanged from the July consultation.

Current prices and annual consumption details on renewal letters

Most respondents agreed with our proposals. One supplier believed these changes were unnecessary and another two suppliers thought the additional information on letters could be confusing. Another supplier sought guidance on our additional rules in 7A.9(b) to give micro-business consumers clarity on variable-price contracts.

We believe it is important for consumers to be aware of their current prices and consumption when they renew their contract. This will help them to compare their current supplier’s prices before looking at what other suppliers can offer. The Standards of Conduct apply to all themes and matters covered by 7A, so this information needs to be presented and communicated fairly.

Other than the addition on current prices and annual consumption in 7A.8(e) and (f) we do not see the redrafted conditions 7A.8 (a) to (d) as additional requirements. They now explicitly describe what principal terms should be provided to consumers in different renewal scenarios. We believe this clarification will help to ensure consistency across suppliers. We have summarised these scenarios in Figure 1 below.

The new condition 7A.9(b) is drafted to ensure consumers know if their prices can change during a contract. These rules also apply to any fixed-term contract with variable terms. If prices can vary throughout the contract then we believe this should be absolutely clear to consumers in the principal terms before they enter a contract. If these variations are not explicitly agreed at the start of the contract, suppliers should tell the customer where they can find the current prices.

The licence drafting is unchanged from the July consultation.

 Acknowledging termination notice

Most respondents supported this change; for many suppliers it was already consistent with their current practice. One supplier agreed with the principle of notifying consumers on auto-renewal contracts but believed there were more effective ways to inform them of their contract status. A consumer group thought the proposal should go further and require suppliers to contact customers within 24 hours of any objection to switch.

As we stated in the July consultation, we agree that acknowledging customer termination notices is particularly important for auto-renewal contracts. However, suppliers can still require a notice period to terminate other contracts. We believe in all cases when termination notice is required the customer should be informed that their notice has been received and accepted by the supplier. This way they can enter a new contract without facing an objection10 or being billed on deemed or out-of-contract prices.

The licence drafting is unchanged from the July consultation. Banning auto-rollover contracts

Six respondents still believed we should ban auto-renewal contracts or stop suppliers from including termination fees for any automatically renewed contracts.

While these responses haven’t persuaded us to ban auto-rollovers outright, we do appreciate the risks they pose. We do believe they can be problematic for some consumers if prices are significantly higher than an equivalent negotiated contract. In the next six months we expect to:

  • Update our micro-business factsheet before the new rules take effect to explain these changes to consumers.
  • Issue another information request in early 2015 to give us an up-to-date view of micro-business prices and the number of meter points on different contracts. This is likely to have a similar format to our information request in August 2013.
  • We will publish our findings and say whether we intend to make any further changes.

We will also monitor the changes seven suppliers have already taken to end auto-renewal contracts with termination fees.

Other comments

Several responses pointed out a typographical error in the proposed changes to Annual Consumption Details in SLC 1 of the electricity supply licence. This has been corrected and highlighted in the modification notice. In addition, we have amended the drafting in both the electricity and gas modification notices so that the term “fixed-term” is hyphenated throughout for consistency.

 

 

 

 

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