©PA Choosing to pay a higher or a lower price for an identical product ought to be a no-brainer. Yet that is not how things work in practice in the UK’s gas and electricity market. Fifteen years on from the sector’s deregulation, a majority of retail customers have never — at least, not to their knowledge — switched to a different power supplier. Most sit for years on a default tariff that can cost them several hundred pounds more than the cheapest deal on offer. The six suppliers that serve 90 per cent of the market have been happy to exploit the apathy. They lure new customers through cheap tariffs that rank well on price comparison websites — subsidised by the higher default rates, which even bargain hunters tend to pay for a few months when fixed-term deals expire. This dual market is especially unfortunate, because the poorest customers — whose gas and electricity bills represent almost 10 per cent of household spending — are the least likely to seek out the best prices. This is the situation exposed by a long-running investigation by the competition authorities — whose proposals Ofgem, the energy regulator, is now seeking to implement with a package of measures it describes as a “watershed” for the industry and consumers. The watchdog is rightly proposing an interim cap on tariffs for customers on prepayment meters, who are offered a more limited choice and may be unable to switch supplier if they have a poor credit history. But Ofgem has not acted on earlier proposals to cap prices for the market as a whole. Instead, it plans to run trials of various ways to prompt, prod and pester people into switching. These range from simple interventions, such as stipulating how energy suppliers present the options when they bill customers, to a more controversial proposal to create a database of customers who consistently pay over the odds, who would then, unless they opted out, receive offers from rivals. Ofgem’s cautious approach is probably the right one for now. Regulating prices for all customers would be tantamount to admitting that the market had failed. It could also, in practice, lead to a convergence of prices around the cap — as has been seen with UK universities, who almost all charge students the maximum fee permitted. Competition in the gas and electricity market clearly leaves much to be desired at present, but it is not at all clear that prescriptive regulation would achieve a better outcome. Indeed, Ofgem is proposing to scrap a recent rule limiting suppliers to offering just four tariffs. This was meant to make billing simpler but it simply led to the withdrawal of cheaper deals and stifled innovation with little benefit. Moreover, any regime put in place now will to an extent be a temporary one. By 2020, all 26m UK households are meant to be equipped with smart meters. There are still technical hurdles to overcome, but once in place, smart meters should make billing more transparent, because suppliers will be able to measure actual consumption, rather than issuing estimates based on infrequent meter readings and typical customer profiles. It is to be hoped that customers will also start to care more about their energy bills, when they can track how much power they are using in real time. Beyond the benefits to their own pockets, there is a wider public interest in making people more responsive to price signals — variable pricing should be a tool to help the UK achieve other goals on energy security and climate change. Policymakers should be wary of measures that invite a deluge of marketing. But testing out new ways to nudge people into taking a more active interest would be worthwhile. Copyright The Financial Times Limited 2016. You may share using our article tools. Please don’t cut articles from FT.com and redistribute by email or post to the web. Source link