OFT Secures Improvements for Domestic Bulk LPG Customers

Jack Humphrey, Regulatory journalist
April 09, 2012 /

The OFT has secured voluntary agreements from the major liquefied petroleum gas (LPG) suppliers to change their domestic bulk customer contracts and improve transparency around switching and cancellation rights.

The OFT sought voluntary agreements because it viewed some of the terms in contracts as being potentially unfair. The Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs) apply to standard contract terms with consumers and protect consumers against unfair standard terms in contracts they make with traders.

The OFT can take legal action to prevent the use of potentially unfair terms. A term is likely to be considered unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract, to the detriment of consumers. A consumer is not bound by a standard term in a contract with a trader if that term is unfair. Ultimately, only a court can decide whether a term is unfair.

Avanti Gas Limited, BP Gas, Calor Gas Limited and its sister company Calor Gas Northern Ireland, and Flogas UK Limited and its sister company DCC Energy Limited (trading as Flogas Northern Ireland) have all agreed to make changes. This OFT action follows on from its 2011 Off-Grid Energy Market Study, which identified concerns that some suppliers may not be treating their domestic bulk LPG customers fairly.

Most people with a large supplier-owned LPG tank on their premises, rather than the smaller cylinders, will usually enter into contracts for the supply of domestic bulk LPG. These contracts typically begin with a two year exclusive supply arrangement during which the customer is tied to the supplier.

The improvements to the terms and conditions for the supply of LPG and other relevant customer information will mean that customers can better understand how prices can change during this two year period, their switching and cancellation rights, and the associated exit costs. In particular, the changes should ensure improved rights to cancel or to switch supplier.

Consumers will be better protected with improved rights to cancel or to switch supplier when prices rise beyond a specified level. Greater transparency in price variation clauses will also allow people a better informed view of the likely cost of a contract. These changes have been agreed by Calor Gas Northern Ireland Limited, Flogas UK Limited and DCC Energy Limited. Avanti Gas, BP Gas and Calor Gas Limited already give their customers cancellation rights when prices rise beyond a specified threshold.

Exit charges are clearer to customers

Where customers are switching to a new LPG supplier they will not bear the costs of the transfer of their tank to the new supplier, nor any direct costs associated with the removal of their tank in order for a new tank to be installed. All the parties have agreed changes to clarify their charges.

Customers understand their options after an initial lock-in period

Some customers may wish to continue their existing contract with the flexibility to cancel or switch suppliers at any time. Others may wish to commit to a new contract that may remove this flexibility but may also offer improved terms. All parties have agreed to clarify these options when writing to customers about the end of the lock-in period, except for Calor Gas Northern Ireland for which the OFT did not identify the same concerns.

Mary Starks, Director in the OFT’s Services, Infrastructure and Public Markets Group, said: “150,000 people rely on LPG to heat their homes. They need to know where they stand when they are dealing with suppliers.

“The changes we have secured will mean customers are better informed of how prices can change and of their cancellation rights.”

The domestic bulk LPG market is subject to existing Orders made by the Competition Commission. These Orders include restrictions on: the charges that can be levied when customers switch suppliers; switching times; and the length of exclusivity periods in contracts. The OFT has a statutory duty under section 162 of the Enterprise Act 2002 to monitor and enforce such Orders.

 

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