The first mobile phone-style energy tariff that locks-in customers for 12 months has been launched. It follows the decision in August by Ofgem, the energy industry regulator, to allow suppliers to prevent customers from switching away for up to a year. Previously, suppliers could only insist on locking customers in for a maximum of 28 days. The new tariff is being launched by Utilita, a small energy supplier that is independent from the ‘big six’ suppliers that dominate the UK market. It is the only Utilita tariff available to new customers and commits them to at least 12 months with the supplier. Under energy industry rules suppliers are not allowed to lock in customers and then raise prices, so customers have the right to leave the tariff if Utilita if it raises prices. However, customers will not be able to change simply because they can get a better deal elsewhere. It creates the danger that, in a market where prices are falling, customers will not be able to leave a contract that becomes poor value. An anticipated consequence of Ofgem allowing 12-month contracts is that fewer customers will switch their energy supplier, a potential problem for price comparison and switching companies. Scott Byrom, utilities expert at price comparison website moneysupermarket.com, said: ‘The fear is rival energy suppliers will be tempted to mirror this move, thereby opening the floodgates for providers to impose long-term contracts. I urge them not to as this will be detrimental to the consumer who is likely to see healthy and aggressive competition in the marketplace disappear, replaced by lock-ins and suppliers sitting pretty on long-term deals.’ However, 12-month contracts should have other benefits for consumers. In allowing longer contracts Ofgem hoped suppliers would have more incentive to implement energy-saving measures for customers and eventually smart meters, where usage can be measured electronically, overcoming the headache of incorrect billing. Utilita already operates a scheme that rewards customers with points that can be exchanged for energy-saving measures in their homes. These range from low-energy lightbulbs to cavity wall and loft insulation. These should reduce customer energy use and reduce bills. David Casale, chief executive of Utilita, said: ‘Longer contracts help us commit to energy-saving measures for customers and we are working to install smart meters more widely than has been done before. It really wouldn’t make sense for us to allow prices on these contracts to become uncompetitive because customers would just walk away at the end of a year.’ This is Money says: It would be easy to decry the coming of mobile phone-style contracts for energy as another tool for suppliers to lock customers into expensive tariffs when prices are falling but, if introduced properly, there are many potential benefits. There is no doubt customers will be exposed to a risk of being unable to switch to a better value deal but the energy market in the UK is crying out for change. As a nation, we need to use less energy and we need systems that can accurately charge us for the energy we use, thus preventing cases of bungled bills that plague customers. Inexplicably, when changing the rules to allow longer contracts Ofgem did not insist that suppliers accompany the contracts with energy saving measures and, in time, the installation of smart meters for those who sign up. Thankfully, Utilita has an effective system of measures that mean customers can reduce their energy usage and the company is working on smart meters as well. In terms of price, Utilita is among the cheapest supplier in many areas of the country (use a price comparison tool to find out exactly who the cheapest will be for you). Prices are currently falling so customers should be wary of signing up to this contract now, but for some it could be beneficial. Utilita reckons that in three years as a customer you will be able to pay for energy saving measures like loft and cavity wall insulation from the reward scheme it operates. If your home could benefit from these the long-term savings are likely to outweigh the benefits of going for a marginally cheaper tariff that dioesn;t lock you in.

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