SVTs bound for the sidelines?

Eon has said it will no longer roll over all fixed-deal customers onto standard variable tariffs. David Blackman asks what its motives are and whether this could lead to more suppliers culling SVTs.

The united front that the big six energy suppliers have been holding on energy prices finally began to crumble last week with Eon’s announcement that it will no longer automatically roll over all its fixed-deal customers onto standard variable tariffs (SVTs).

Eon is not the first supplier to sideline SVTs, with Engie having announced that it will not offer such deals when it entered the retail market earlier this year. Moreover, Eon’s offer of a fixed-term tariff will be limited to customers who already have a smart meter or are planning to have one installed. So does its move mark the beginning of a shift in the market, or is it simply a PR stunt, neatly timed to coincide with party conference season?

SVTs have been controversial since the Competition and Markets Authority’s investigation into the energy retail market, which reported back in 2016 after two years surveying the market and listening to evidence. It highlighted SVTs as a particular problem, with “disengaged” customers being charged significantly more on the tariffs than they needed to be.

Eon’s decision earlier this year to hike SVTs by 8.8 per cent helped to fuel calls to cap energy prices, which now loom large over the industry. Ofgem is set to announce an extension to the price cap for prepayment meter holders to all vulnerable customers any day now, while senior Conservative MP John Penrose is leading a campaign within the government’s own party for a market-wide price cap, backed by legislation if necessary.

Where does that leave Eon? “At some point, an energy company has one of two moves to make. One is getting ahead of government policy and seeing an advantage in moving first,” says Hywel Lloyd, associate director of the Institute for Public Policy Research (IPPR).
“It looks as though the market is reacting more quickly than the politicians and regulators,” adds a former senior regulator, who nevertheless sees mixed motives in Eon’s announcement.

Referring to a famous quotation by the Christian Saint Augustine, he says: “It’s a bit like ‘Lord make me pure – but not yet’.
“I suspect they don’t want to shift everybody off higher-priced tariffs but they think that inducements to move to smart meters will kill two birds with one stone.”

There are undoubtedly questions raised by Eon’s announcement. The principal one is that while customers on fixed tariffs will be automatically shifted onto a fixed-rate deal, it is unclear what will happen when that ends.

In addition, Eon has yet to publish the details of the new fixed-rate tariff, which makes it hard to establish whether it really will be a good deal or not for consumers.

Citizens Advice chief executive Gillian Guy says: “This must not become a situation of one bad deal replacing another. Eon needs to be absolutely transparent about the costs of any rolling fixed deal, and also be clear with customers about what happens when the fixed period ends.”

Eon’s chief executive Michael Lewis says the company believes SVTs have “had their day”. He claims the move “is about increasing engagement with customers and having better conversations about what they need from their energy supplier, making sure they have the tools and the knowledge to choose a tariff that best suits their needs”.

However, cynics suggest the move may also serve to remove the company from the political firing line. Labour and Conservative politicians have been falling over themselves to attack the energy companies since the turn of the year.

The latest manifestation of this increasingly hostile climate was a new report last week from the IPPR.

While much of the report was concerned with uncontroversial recommendations about making energy bills better, its proposal that suppliers should only be allowed to offer one tariff will raise more eyebrows.

Lloyd, who co-authored the report with Joshua Emden, says the conclusion emerged from focus group work that the think tank carried out with energy customers.

He says this feedback, combined with an analysis of Ofgem data, showed that while the level of switching is growing, the hard core of unengaged customers is also expanding.

The multiplicity of tariffs on offer from suppliers was dismissed by many, he adds: “For lots of customers, it felt like smoke and mirrors.”
This is why, Lloyd believes, there needs to be a radical simplification of energy tariffs that goes beyond earlier rules limiting suppliers to four tariffs, which would mean customers still having to wrestle with nearly 200 deals.

However, the IPPR’s proposal runs against the grain of regulatory orthodoxy, enshrined in Ofgem’s recent abandonment of the four-tariff cap.

The former senior regulator says: “Ofgem realised that it was a non-starter. It would seem simpler but evidence doesn’t suggest that customers respond more with simpler tariffs.”

Guy says policy makers must not use Eon’s move as an excuse to take their eye off the ball. “While statements of this nature are encouraging, it is essential that Ofgem acts to cap the cost of energy for the most ­vulnerable in society.”

The next step in the energy price caps debate was meant to be Ofgem’s consultation on how its mooted safeguard cap for vulnerable customers would work.

Ofgem chief executive Dermot Nolan was due to publish a consultation on how this safeguard tariff would work by the end of September. However, in a conference speech last week, he said the energy regulator would be publishing its proposals in the “coming weeks”, pointing to a delay.

Greg Clark, secretary of state for business, energy and industrial strategy (BEIS), has made it clear, though, that he wants all customers to be able to benefit from the price cap.

With such heavy-handed intervention on the horizon, it is little wonder that ­suppliers are beginning to develop their own ­solutions. But is it too little, too late?