Time of use energy creates barriers to switching supplier

New research by Citizens Advice has found that customers on legacy Time of Use (ToU) tariffs struggle to make the most of their benefits.

As well as lacking understanding of how to use these tariffs, customers are facing additional barriers to switching. Some customers report that other suppliers have refused to take them on, and many have had difficulty migrating their ToU contracts to the new provider.

Legacy ToU tariffs

Time of Use tariffs are generally chosen by consumers for specific reasons, perhaps to allow for cheap charging of night storage heaters at off peak times. However, some customers have simply inherited ToU tariffs, without really understanding their purpose. These are classes as 'legacy' ToU.

ToU tariffs include the well known Economy 7 tariff, as well as Economy 10 and more recently Dynamic Teleswitching (DTS).

Barriers to switching

Many of the customers with legacy ToU tariffs said they had faced problems when trying to switch supplier. Some of the issues raised by these customers included:

• Suppliers being unable or unwilling to take them on
• Being unable to use price comparison services accurately
• Inability to find a good ToU deal
• Facing additional charges due to swapping of meters

Those who were put off from switching faced not only paying a loyalty penalty by staying with the same supplier, but also being stuck in a ToU arrangement that perhaps did not suit them.

The report revealed that 57% of legacy ToU customers had never tried to switch. This is somewhat in line with national trends in terms of willingness to switch.

Although more than five million energy customers switched in 2017, that represents only one in five households. According to Ofgem, 57% of the nation are still on standard variable tariffs (SVTs) which are well publicised as being the most expensive.

Overall, 35% had successfully switched supplier in the past. Worryingly, 4% had actively tried to switch, but for one reason or another had failed to do so.

Additional challenges for DTS customers

Dynamic Teleswitching (DTS) customers were shown to face additional challenges over other ToU users.

A DTS user often has multiple meters for different appliances, with high consumers such as their night storage heaters controlled by the energy company to balance demand. Most of these systems are found in the Midlands or in Scotland.

Many DTS systems were installed at the time of the property being built, which can make it incredibly disruptive and costly to replace this system with a modern smart metering system.

Users commented to Citizens Advice that they felt 'trapped' by their DTS, unable or unwilling to invest the sizeable amounts, as much as £200, required to shift to another type of metering.

Other issues were similar to those suffered by other ToU customers, although commonly more acute. Most felt it was too hard to switch, showing that competition on price and service from suppliers is not working for these customers.

Smart meters have been shown to save energy, with 82% reporting they have made at least one change which cuts down their energy use. Although smart meters have been found to save just £11 per household, having one is the right of a householder, so these issues need to be addressed.

Less than half were using ToU to save money

ToU tariffs enable customers to pay less for electricity by using it at off peak times. However, the Citizens Advice report has shown that just 49% of customers are actively trying to do so. There were numerous reasons cited for this, including:

• Not being practical to use appliances during off peak hours (39%)
• Not knowing peak times (74%)
• Not having the right appliances such as storage heaters (80%)

Those who were at work, had young children or had a household of many people were most likely to be failing to make the most of their off peak discounts.

Citizens Advice recommendations

As a result of the report, Citizens Advice have made some clear recommendation to both suppliers and to Ofgem. These are:

Suppliers:

• Provide better information regarding peak and off peak times, and the rates charged at those times
• Make sure all marketing materials make clear comparisons between flat rate tariffs and ToU tariffs
• Ensure smart meters work accurately with older heating systems, particularly storage heaters, before considering a switch to a ToU smart tariff
• Make a plan to deliver the outcomes required by Ofgem in regard to legacy ToU contracts

Ofgem:

• Consider the needs of legacy ToU customers when making any future reforms
• Work with the Department for Business, Energy and Industrial Strategy (BEIS) to ensure meter replacement is consistent, particularly where smart meters are concerned
• Pay regard to legacy ToU customers when reviewing consumer communications

There are plans in the pipeline to use smart metering to encourage more ToU tariffs, known as Smart Time of Use (SToU) tariffs, in the future.

Giving customers discounts when there is less demand across the grid makes absolute sense. But unless those customers understand the pros and cons of such tariffs, are able to switch supplier easily and the smart switching technology actually works, it's not going to be good news.