Proposed energy measures harmful to vulnerable consumers

New measures proposed by the energy regulator (Ofgem) will be harmful to those they seek to protect. This was the message delivered by Dr Timothy Dodsworth and Christopher Bisping at the Society of Legal Scholars conference on 7 September 2018.

Ofgem recently announced that it would be capping the standard variable tariff for gas and electricity providers. The aim of the Government was to protect the most vulnerable consumers that are unlikely to switch providers by limiting the amount providers could charge. Dr Timothy Dodsworth and Christopher Bisping have found that by introducing the price cap, providers across the board are more likely to charge the upper limit. In addition, the price cap is likely to make the market less competitive in the long term. 

Ofgem’s announcement comes as part of a broader trend of political intervention in the energy sector. Prime Minister Theresa May made a campaign promise to tackle fuel poverty and to address the ‘injustice’ of the big six energy companies overcharging their customers. The inquiry into energy price caps, led by Rachel Reeves, recently published its findings that the big six energy companies had not done enough to protect ‘vulnerable consumers’. The big six, so it concluded, were making large-scale profits from consumers who were unwilling or unable to engage in the competitive market. Based on a report by Ofgem, the Department for Business, Energy and Industrial Strategy prepared a bill seeking to introduce an absolute, rather than relative price cap, on all standard variable tariffs with results from this call expected in the summer of 2018.

The research by Dr Timothy Dodsworth and Christopher Bisping suggest that the price cap is more likely to harm those consumers in the long run. In their presentation, they showed that a misunderstanding as to the uncompetitive nature of the price cap is the likely motivation for the legislative intervention. Dr Timothy Dodsworth and Christopher Bisping analysed consumers’ switching behaviour by contrasting it with patterns found in other industries and evaluated the idea that vulnerable consumers need the protection of a price cap. They compared the solutions to other types of long-term contracts, in particular mobile phone contracts, and suggested a less interventionist approach that regulates the renewal process and will therefore help identify the most vulnerable consumers in order to provide them with the help that they need to engage in the market.

The presentation forms part of a Dr Timothy Dodsworth’s broader research project which looks at the contractual frameworks of long-term consumer relationships. By comparing similar contractual relationships, the project aims to extract the main underlying values of long-term contracts in order to propose more effective regulatory responses.