Our response to the UK Government’s consultation on future default tariffs

Yes, we agree with these principles.

No, there are no other key decisions concerning the future regulation of default tariffs that we believe these principles wouldn’t cover. 

No response – this question is outside of our areas of expertise. 

Yes, protections should be placed on the type of default tariffs that suppliers use for domestic customers. Specifically, we think that an obligation should be put on suppliers to ensure that customers default on to tariffs that suit their circumstances (for example a tariff that suits a home heated by storage heaters is very unlikely to suit a home heated by a heat pump).  

In this context we note our support for recent work undertaken by Citizens Advice. Amongst other things this work emphasised that there would be risks for some consumers being placed on a time of use default tariff including, for example, low-income households that rely heavily on using electricity during peak hours who, as a result of being placed on a default time of use tariff may face significant bill increases that they might not be able to manage.

This work also suggested that targeted bill support could help to address the risks associated with having time of use tariffs as default tariffs and pointed to the example of the Spanish retail market – where a default time of use tariff was only implemented after the establishment of a bill support mechanism.  

In terms of protections for consumers we think that there is much that can be learned from existing experience of the time of use tariffs that have been in use across GB for many years (for example Total Heating with Total Control (THTC) and Economy 7). The following resources provide useful insights into these issues: 

• The Competition and Market Authority 2016 investigation (it’s important to flag here that their recommended solution is “temporary”, it doesn’t cover those with smart meters (so if everyone has a smart meter, this is no longer a relevant obligation)).

• Supporting Consumers on restricted meters in Northern Scotland, Changeworks
• Hard-Wired Problems, Citizens Advice Scotland
• Scottish Government island communities impact assessment for the Fuel Poverty (Targets, Definition and Strategy) (Scotland) Bill

We think that default arrangements should take into consideration a person’s vulnerability. However, we note that defining a specific group as “vulnerable” might overlook individuals or households who may also struggle with fluctuations in energy prices.

We therefore think that consideration should be given to an assumption of ‘universal vulnerability’ (i.e. assuming that everyone is ‘vulnerable’ to volatile energy prices) and the implications for keeping people universally safe and whether this could deliver better outcomes for all consumers. We would welcome further research/analysis in this area. 

As noted in our response to question 4 above we think that an obligation should be put on suppliers to ensure that customers default on to tariffs that suit their circumstances. In this context we think that suppliers should be able to provide both single and Time of Use default tariffs for households to move onto.

The provision of single default tariffs will continue to be important for many customers including those who struggle to avoid high electricity use at peak times. We agree with the analysis in the Aldersgate Group’s recent report ‘The Case for a Social Tariff: Reducing Bills and Emissions, and Delivering for the Fuel Poor’ that time of use tariffs shouldn’t “be seen as an immediate solution for affordable energy bills for all” but that they should be “…available for households that desire them”.

We think that there could be merit in trialling default heat pump tariffs for vulnerable people that have the objective of minimising people’s heating costs.  

Yes, we agree that default tariffs for households with electric vehicles should be smart Time and/or Type of Use Tariffs. Electric vehicles are, and will increasingly become, a significant consumer of electricity within the suite of electric ‘appliances’ of many homes. The availability of default tariffs that are both time and type of use smart will ensure that those with electric cars can maximise cost savings. 

We think that protections should be in place related to the type of tariffs that households with electric vehicles default onto. Our thinking is still evolving in relation to this issue, but we would note that customer defined ‘rate caps’ could help to protect customers from significant peak rate pricing. In a similar way to selecting a home insurance excess this would allow the tariff user to tailor their risk appetite. 

We think that default tariff(s) for electric vehicle owners who don’t possess a smart meter or smart charge point should, as far as possible, have a clear ‘off-peak’ period that EV owners can used to charge (for example overnight). We would expect that a significant number of customers are likely to be in this position until full smart meter roll out is complete and until all SMETS1 meters have been upgraded.

We think that there are technologies, in addition to electric vehicles, when used individually and/or in combination with each other that could influence the default tariff arrangements of households. Specifically, heat pumps, smart high retention storage heaters, electric storage heaters (including those with attached hardware/software that allows them to charge flexibly), electric battery storage, heat battery storage and solar pv.    

Whether or not a home has a smart meter should also influence the default tariff arrangements of the household. A household without a smart meter won’t be able to take advantage of smart time of use tariffs. It will be important that households, who are unable to install a smart meter for whatever reason, (because of connectivity issues, because the supply chain has failed to provide one etc) aren’t penalised because of this.

It will therefore be important to ensure that there are appropriate tariffs available for them to default onto.  

No response.

Yes, we believe that if an electric vehicle owner has chosen a specific tariff they could face a detriment if they default onto a different tariff structure at the end of the fixed term. If smart tariffs become the norm and engage with them, as they will be encouraged to do, it’s likely that they will quickly refine their EV charging regime to maximise the benefits of the smart tariff they have selected.

If they default onto another tariff it’s very likely that this will reduce the benefits that they have become accustomed to. To help EV owners choose the right tariffs we think it would be helpful if tools were available that would enable an EV owner to compare their current tariff with those of other providers.

We agree that a rule or principle encouraging default arrangements to maintain some consistency of tariff type when a fixed term ends would be helpful in protecting electric vehicle owners who have previously chosen a specific tariff and charging structure.

We note that suppliers should also be able to make an assessment about appropriate default tariffs for some users based on usage patterns (e.g. it will be clear from someone’s usage patterns if they are charging a car). We also agree that there is a case for electric vehicle tariffs to be evergreen or rolling fixed terms in that such arrangements could help to protect people from a cliff edge of tariff changes.  

Yes, the current default price cap should be reformed or replaced with more flexible price regulations as we transition to MHHS. It’s important when doing this that the objective of targeted price protection remains in place to protect consumers who are inactive in the market, which could form part of the consideration of the design of default smart tariffs. We don’t have a firm view about when in the transition to MHHS this change should take place. 

While we agree that default price regulations need to support a greater diversity of tariff types (for example a default heat pump tariff) to help secure lower long-term bills and meet households’ different energy needs we don’t have an existing position on how this might best be achieved.  

We think that if price protections for default electricity tariffs are reformed in the future that default gas tariffs should also be updated. We agree with the assertions in the consultation document that “…it is important that price regulations do not artificially inflate the benefits of continuing to rely on gas” and that if “default price protections are reformed for electricity tariffs in future, it will be important that the regulation of gas tariffs is compatible with the overall objectives…”.