‘Off-grid Energy Suppliers Need Consumer Law Enforcement Not Price Regulation’

Jack Humphrey, Regulatory journalist
October 30, 2011 /

The OFT has reported that off-grid market competition works well generally, with consumers offered a good choice of suppliers, and that the off-grid sector does not need price regulation.

However, the OFT raises the concern that some heating oil and possibly some other off-grid fuel suppliers are not treating their customers fairly and is currently examining practices further.

Four million households depend on off-grid energy such as heating oil, liquid petroleum gas (LPG) and, more recently, microgeneration which includes renewable energy sources like solar panels.

On September 9, 2011, the OFT announced that it secured undertakings under the Consumer Protection from Unfair Trading Regulations (CPRs) from WCF Fuels Limited and Boiler Juice Limited, preventing them from engaging in business practices that could be misleading.

When looking at heating oil, the OFT found the primary driver of price increases to be the crude oil price, which accounts for over 90 percent of the variation in the retail price of heating oil.

The OFT also specifically looked at why some heating oil customers experienced high prices during last winter. It found that a sudden increase in demand (up 40 per cent on the previous year), at the same time as deliveries were hampered by the severe weather, led to a short lived ‘price spike’.

However, with 97 percent of off-grid households living in an area served by at least four suppliers, the OFT found that competition has constrained prices over the year as a whole and that profit margins have not been excessive.

The OFT received complaints that some suppliers were charging a different price on delivery from that quoted when the order was taken. The OFT is currently examining this and related practices.

During the study it received complaints that people may be locked into expensive LPG contracts following an initial introductory rate, and it is working with the industry to resolve the matter.

There were also some concerns surrounding the potential mis-selling of solar panels. The OFT said it will work with the industry code operator to monitor complaints and ensure they are properly handled, and when necessary will take steps to address unfair commercial practices.

During the market study, the OFT took action against certain heating oil companies and price comparison websites to improve website transparency and prevent consumers being misled when searching online for heating oil supplies.

Following this action, the OFT noted that transparency has improved further for households buying heating oil, as some traders have also changed their practices so that people are better informed about which company owns heating oil brands.

Clive Maxwell, OFT Executive Director, said: “We looked at both competition and consumer issues as part of this comprehensive study, and whilst there seems to be a good choice of suppliers across most of the country, we have real concerns about whether consumer protection law is being complied with in all cases.

“It is important that the off-grid energy sector works well and that people who rely on it are protected, which is why we have already taken action to increase transparency on websites and are currently undertaking a wider examination of pricing practices.”

OFT market studies allow a market-wide consideration of both competition and consumer issues. They take an overview of regulatory and other economic drivers in the market and consumer and business behaviour.

Possible outcomes of market studies include enforcement action by the OFT, a market investigation reference to the Competition Commission (CC), recommendations for changes in laws and regulations, recommendations to regulators, self-regulatory bodies and others to consider changes to their rules, campaigns to promote consumer education and awareness, or a clean bill of health.

 

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