Utility Week

24 | 1ST - 7TH DECEMBER 2017 | UTILITY WEEK Customers Analysis I n September, Eon became the first of the big six suppliers to scrap its standard variable tariff (SVT) when it announced it would no longer roll over customers on discounted fixed price tariffs on to its more expensive default rate, which incidentally 66 per cent of the market is still on. Speculation was then rife that it would not be the last, and Utility Week suggested that sidelining SVTs could be an emerging trend. And so it has now come to pass, as it turns out Eon's realignment on SVTs did mark the beginning of a shi in the market. Scottish Power followed suit last month and now British Gas has announced it will abol- ish SVTs for new customers by 31 March next year. SVTs have been especially controversial since the Competition and Markets Author- ity's (CMA's) 2016 investigation into the energy retail market, which reported back aer two years of surveying and listening to evidence. It highlighted SVTs as a particular problem, with "disengaged" customers pay- ing significantly more than they needed to. Suppliers did react to those conclusions, but not until a year later. And even then, Eon is not abandoning SVTs altogether. Just like Scottish Power and British Gas, it is more of a "move towards" exercise. When it comes into effect next year, Eon will replace SVTs with a one-year fixed price deal, but only for smart meter customers and those planning to have one installed. It is a tempting carrot to dangle as those smart meter installation targets edge ever closer. Likewise, Scottish Power's promise is to stop rolling customers on to SVTs when their fixed price deals come to an end – instead, from next year, customers will be offered new fixed rate products. Meanwhile, British Gas says it is scrapping SVTs for new customers only, although it also says it will encourage those on SVTs to choose more competitive deals. In place of SVTs, British Gas will intro- duce a 12-month fixed rate default tariff for customers who do not select one of a range of other competitive tariffs to move on to. Whether all this activity is a response to Theresa May's vow at this autumn's Conserv- ative party conference to put a price cap on "rip-off " energy bills remains a moot point. Companies deny it, but aer she clarified the cap would apply to the 17 million customers on SVTs, dra legislation swily followed, and so the games began. But are all three companies now enter- taining the possibility that these SVT ini- tiatives will head off the proposed price cap legislation? And if they are, how realistic is that ambition? If the cap fits Scottish Power's chief executive, Neil Clith- eroe, was not shy in coming forward on the matter of a price cap when he announced the company's new approach to SVTs in October. He said: "A price cap will not help engage- ment in the energy market; only removing standard tariffs can do this. If every customer was on a fixed priced product, millions more customers would be prompted to look for the best deal every year, competition would flourish, and the market would work for all." Eon UK chief executive Michael Lewis echoed those sentiments when speaking at the Utility Week Congress in Birmingham, also in October. He said intervention in the retail market would reduce competition, and deter engagement and innovation. He said a stable, long-term regulatory framework with the right incentives in place would enable the retail market to invest and innovate, bringing benefits for consumers, but a blanket cap on the whole market "will have the opposite effect". He said: "It [a price cap] will reduce cus- tomer engagement in the market. It will reduce choice and it will reduce the opportu- nity for new innovative competitors to come into the market." Last week's SVT-culling announcement from British Gas came alongside a ra of measures the company believes could rem- edy failures in the domestic energy retail market (see "Seven Actions", right), and which it claims are preferable to the intro- duction of a price cap. These include a range of commitments and calls for action from the government and Ofgem, which it says will increase engage- ment and market transparency, and promote "fairness". Notably, however, the change agenda for the energy market announced by Centrica (British Gas's parent) also includes a call for policy and environmental costs to be split out and handled via general taxation. Cur- rently, these costs are wrapped into domes- tic energy bills. Centrica chief executive Iain SVTs are dead, long live SVTs With British Gas joining those announcing the imminent scrapping of SVTs, the industry is trying hard to prove it doesn't need a price cap. Will its efforts make any difference? Alice Cooke reports. NUMBER OF NON-PREPAYMENT, DOMESTIC CUSTOMER ACCOUNTS BY SUPPLIER: SVT, FIXED AND OTHER TARIFFS 8,000,000 6,000,000 4,000,000 2,000,000 0 Number of accounts British Gas SSE Eon EDF Scottish Npower First Utility Ovo Utility Co-op Power Warehouse Source: Ofgem analysis of supplier data submissions. August 2017. Does not factor in Centrica's announcement last week of the loss of 800,000 customer accounts Fixed tariff Other non-SVT SVT (less than three years) SVT (more than three years)

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