Chapter 5 - Consumer engagement and support
A key reason for current and persistent rural market failures is that the great majority of rural consumers continue to show a marked lack of interest in, and/or a nervousness about, switching their loyal custom away from their long-standing energy supplier to a much cheaper supplier.
The causes are varied, but The Task Force strongly agrees with the CMA's conclusion in its recent Energy Market Investigation report, namely that "the weak customer response (to switching) gives suppliers a position of unilateral power concerning their inactive customer base which they are able to exploit through their pricing policies or otherwise and which discourages customers from considering or selecting a new supplier that offers a lower price for effectively the same product ... (an issue) particularly affecting customers who are elderly, live in social or privately rented housing or who have relatively lower levels of income or education."
The Task Force believes this is especially applicable in rural areas because Ofgem figures show that 85% of customers in the North of Scotland and 78% of customers in the South of Scotland on time-of-use tariffs are still with their incumbent supplier. The CMA found that, across GB, roughly 93% of customers on restricted meters (a subset of ToU customers) are on a Standard Variable Rate tariff, and that 67% of these customers could benefit by switching to the market cheapest deal.
It is the Task Force's view, therefore, that a key objective of the Scottish Government's new fuel poverty/affordable warmth strategy must be to lead a well co-ordinated switching campaign. One which also ensures that it has the skilled human resources ( i.e. a comprehensive network of dedicated national and locally-based energy advice service providers) committed to delivering the personalised (and home-delivered where necessary) follow-up services, which the Task Force believes will be required to crack the problem and, in particular, to support vulnerable consumers living in off-gas rural and remote areas.
Whilst the Task Force has reservations about the CMA's recommendation to "create a database of customers who have been on the standard variable tariff for three years or more to allow rival suppliers (and Ofgem) to prompt these customers to engage", we do support their proposal "to enhance the role of Third party Intermediaries by removing restrictions on their access to data and regulations that undermine their incentives and (would) enhance their ability to promote engagement."
The Task Force also believes that only the smarter of the two smart meter types available - that is the "smart grid meter" - should be made available to customers in off-gas rural areas and has assumed that there will be full roll out to all rural customers.
Critical actions which should be taken are as follow:
5.1 Ofgem to investigate, develop and ensure the provision (either directly or by a trusted and independent intermediary e.g. Citizens Advice Scotland, ( CAS) of a non-transactional price comparison website where prices can be compared on all tariffs charged by suppliers of all domestic fuels in all distinct energy market areas of Scotland. CAS to explore the possibility of providing a bespoke service for these customers, delivering information, awareness-raising and a handholding advice service through referral to local and national agencies.
5.2 Ofgem and SG to lead and co-ordinate a campaign to publicise and promote the advantages of switching, with a particular priority to be given to off-gas rural areas. (See also 4.5.)
5.3 SG to fund Home Energy Scotland ( HES) to extend the switching service provided through the HES network, building on their successful pilot of a switching service for tenants of local authorities and housing associations. SG is currently considering extension of this service and it should now be made available to all households.
5.4 SG to ensure that switching prompts are embedded in energy efficiency programmes, and expanded to other activities where possible. This should include advice for regulated and non-regulated fuels.
5.5 UK Government to ensure that the Smart Meter roll-out reaches rural customers, particularly vulnerable customers and all those living in the more expensive, off-gas parts of rural and remote Scotland as early as possible in the rollout timetable. They should also ensure that these customers receive the technology that allows them to access the full benefits of the smart meters, requiring Smart Meter Equipment Technical Specification 2 ( SMETS 2) capability.
5.6 Scottish Parliament and Scottish MPs to actively support information and switching campaigns and services aimed at saving consumers money on their energy bills. To further support this activity, and the recommendations of this report, we recommend the relevant subject Committees in the Scottish and UK Parliaments conduct annual scrutiny sessions to review progress in tackling fuel poverty.