February 2000

Comparing Electricity and Gas Prices

Consultation Paper

Contents

Page

Executive Summary

Chapter 1 Introduction 1

Chapter 2 Regulatory Position 6

Chapter 3 Current Practice 9

Chapter 4 Customer Experience 11

Chapter 5 Making Information Available to Customers 17

Chapter 6 Conclusions 30

Annex A Examples of Ofgem pricing factsheets

Annex B Text of relevant existing electricity licence conditions

Annex C Text of relevant existing gas licence conditions

Annex D MORI methodology

Annex E Text of proposed new licence condition for electricity supply licences

Annex F Text of proposed new licence condition for gas supply licences

Executive Summary

Overview

This document seeks views on Ofgem’s proposals to assist domestic gas and electricity

customers by introducing arrangements to simplify the presentation of prices by gas and

electricity suppliers and to provide the means by which customers can readily identify

and compare the various prices on offer from suppliers. The purpose is to ensure that all

customers, including those who may be fuel poor, have access to good quality

information to enable them to make informed decisions about the choice of prices and

suppliers available in the market.

Present Position

The Director has no direct powers to prescribe how gas and electricity suppliers will

present price information to customers. However, the electricity and gas supply

licences set out a number of obligations on domestic gas and electricity suppliers to

publish information relating to their principal terms and conditions. The marketing

licence conditions of both the gas and electricity suppliers’ licences also contain

provisions requiring suppliers to recruit and train their sales agents so as not to mislead

customers in their sales approach. These conditions have had the effect of tightening

up the marketing activities of suppliers and have alleviated some of the concerns about

misleading information being given to customers on prices and other services or goods

available.

As competition has developed, new tariff choices have also become available to

customers. Suppliers offering “dual fuel” supplies of both gas and electricity (often with

additional discounts for customers who take both fuels) are now common. The range of

tariff offers now available is generally encouraging. Whilst many competitors continue

to structure their offers to match the pricing structure of the incumbent suppliers, others

are introducing new tariff forms, increasing the range of choices available to customers.

Against this background, it has not always been straightforward for customers to

compare suppliers’ prices. Although many practices have been reasonable responses to

competitive pressures, the practices of some suppliers have been either misleading or

likely to add to customer confusion in comparing prices.

Proposals

Pricing information presently used by suppliers on promotional material is complex and

is not presented in a way which facilitates ready comparison between different tariffs

and different suppliers. This is likely to discourage customers from comparing prices

with the result that fewer customers switch to cheaper options or that customers will

switch to less suitable tariffs. In these circumstances a better means of providing

customer confidence in price comparison material seems appropriate.

In Ofgem’s view there is a strong case for introducing an “energy cost index” (eci) for

use by domestic electricity and gas suppliers. The index would be calculated in

accordance with pre-determined rules. There is a range of detailed considerations about

the calculation of the index, the form it should take and when and how it should be

presented which would need to be resolved.

Ofgem’s initial view is that a formal licence requirement to use the index is appropriate

to ensure the successful introduction of the scheme. However, in an increasingly

competitive market any licence requirement should be subject to review and require

positive renewal only if the circumstances justify continuing regulation in this area.

Ofgem also believes that there will be an increasing development of price comparison

services available to customers and these services should comply with certain basic

requirements if customers are to have confidence in using them. The requirements

should be drawn up by Ofgem in discussion with suppliers and customer groups.

Ofgem would welcome views on the issues raised in this paper and specifically on its

proposals for an energy cost index and price comparison services.

1

1. Introduction

This Document

1.1 This document seeks views on Ofgem’s proposals to assist domestic gas and

electricity customers by introducing arrangements to simplify the presentation of prices

by gas and electricity suppliers and to provide the means by which customers can

readily identify and compare the various prices on offer from suppliers. The purpose of

these proposals is to ensure that all customers, including those who may be fuel poor,

have access to good quality information to enable them to make informed decisions

about the choice of tariffs and supplier(s).

1.2 This document sets out the problems some customers have experienced when

comparing prices, the action Ofgem has taken to address these issues, and the industry’s

response to these. The document also reviews practical experience with existing

arrangements.

1.3 The document considers the implications of various possible options for reform,

and concludes with Ofgem’s proposals for licence changes. It proposes that these

should be brought into operation as soon as practicable and sets out the next steps.

Background

1.4 The Electricity Act 1989 and the Gas Act 1985 make no direct provisions for the

way in which suppliers display pricing information, although they are required to make

information available to anyone who asks for it. Shortly after the gas market opened in

the South West of England in 1996, it became clear that some customers found it

difficult to compare the various prices on offer. Ofgas therefore contracted with the

Consumers Association (the publisher of “Which?” magazine) to produce a price

comparison factsheet. This was sent to all to customers who contacted Ofgas and

requested information on comparative prices. Ofgas also produced a factsheet that

explained to customers how they could calculate their annual consumption of gas and

therefore calculate more accurately the charges payable under competing suppliers’

tariffs and for different payment methods. In preparation for the competitive market start

up in electricity in 1998, OFFER produced a range of similar material comparing the

2

prices offered by competing suppliers in each of the 14 Public Electricity Suppliers’ (PES)

areas. Examples of these are at Annex A. This information has been widely used in

press reporting of the competitive market.

1.5 There are currently 23 domestic gas suppliers and 17 second tier domestic

electricity suppliers offering a very wide range of different tariffs covering a variety of

payment methods. One gas and electricity supplier, which has in place a number of

affinity arrangements, currently offers over 50 different tariffs for domestic customers

depending on PES area, customer age, payment method and other individual

circumstances. “Which?” has recently highlighted that the difference in the annual bill

for a typical customer supplied by the most expensive supplier rather than the cheapest

could be as much as £100 a year.

1.6 Since the supply markets opened to competition a number of complaints have

been made about misleading advertising, particularly in relation to price comparisons.

Complaints of this type relating to print advertising, eg roadside billboards and

newspaper advertisements are considered by the Advertising Standards Authority (ASA).

The Committee for Advertising Practice (CAP) and the ASA work together to regulate

utility advertising.

1.7 The number of complaints upheld by the ASA against energy companies for

price comparison advertisements rose from 15 in 1997 to 38 in 1998. Many of the

complaints were about inaccurate and misleading comparisons of tariffs. Complaints

were also received about the failure to include VAT in price comparisons and the

savings which customers could make from switching supplier.

1.8 Following the rise in complaints the ASA/CAP published a help note for

advertisements in which rivals’ prices and offers were compared. The help note stated

unequivocally that advertisements should quote VAT-inclusive prices. Ofgem supports

this position. Since the introduction of the utility codes, the number of upheld

complaints in relation to price comparison advertisements has fallen to 14 in 1999.

1.9 Under the Broadcasting Act 1990, the Independent Television Commission (ITC)

was given statutory powers to regulate the content of television advertising. To fulfil this

function it has published a number of guidance notes, including one on misleading

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advertising and price comparisons. The broadcasters have set up the Broadcasting

Advertising Clearance Centre (BACC) to try to ensure that television advertising does not

breach the ITC codes. The television broadcasters will only screen adverts cleared by

the BACC. However, some adverts cleared by the BACC haave been found to be in

breach of the ITC codes, eg BGT’s ‘Monster 2002’ campaign.

1.10 Ofgem has expressed particular concern about the effect of misleading

advertising by domestic gas and electricitiy suppliers, including BGT and the PESs.

Ofgem stated that it will consider taking action against BGT under the Competition Act

1998 from 1 March 2000 if it continued to breach the ASA or ITC codes.1

1.11 In 1998 the Association of Energy Suppliers voluntarily introduced into its Code

of Practice a requirement for members to ensure that their doorstep sales agents provide

all potential customers (even if they do not enter into a contract) with written details of

relevant prices and charges. The Code requires that written details of all relevant prices

and charges will be given to a consumer:

• at any time on request,

• offered to the consumer when a sales presentation is made, and

• given to a consumer when a contract is signed.

1.12 Ofgem has recently proposed that the present licence conditions on marketing

should be extended and has proposed changes to strengthen the present conditions2.

1.13 The Government’s Consumer White Paper – “Modern Markets: Confident

Consumers”, recognises that confident, demanding consumers are good for business.

They promote innovation and stimulate better value and in return they get better

products and lower prices. Some of the key methods of achieving this are for consumers

to have better information, truthful adverts, clear, helpful and adequate pre-contractual

information, and an effective complaints handling system. The Government proposes

that codes of practice which incorporate these key principles will assist consumers make

more informed choices about which products or services they buy and enable business

to meet this demand.

1 Review of British Gas Trading’s behaviour in the Domestic Gas Market” – A Follow updocument - Ofgem July 19992 “Marketing Gas and Electricity” A Consultation document – Ofgem January 2000

4

1.14 In May 1999 the National Audit Office (NAO) published a report into the

introduction of domestic gas supply competition by Ofgas. In it the NAO recommended

that Ofgem should:

“Seek to improve customers’ knowledge of the impact on their bills of their

choice of supplier and of payment method. While it is for companies to

advertise their prices and terms, Ofgas should consider the scope for measures to

make it easier for customers to make comparisons. These might include

encouraging companies to provide information on prices in a standard format.” 3

1.15 In the October 1999 paper, “Social Action Plan: Framework Document”, Ofgem

raised the issue that some customers may be transferring to another supplier who is

more expensive than their current supplier because they did not know what the new

supplier’s prices were. While some of the issues were summarised in the Framework

Document, this document sets out the issues in more detail.

Structure of Document

1.16 The chapters in this consultation document are structured in the following way:

Chapter 2 describes the relevant provisions of both the electricity and gas suppliers’

licences

Chapter 3 describes current practice for presenting prices

Chapter 4 sets out customer and supplier views

Chapter 5 considers the alternative options for making information available to

customers in order to address views expressed

Chapter 6 draws conclusions and sets out Ofgem’s proposals for reform and a timetable.

Annex A contains copies of the gas and electricity factsheets

Annex B contains the text of relevant existing electricity licence conditions

Annex C contains the text of relevant existing gas licence conditions

Annex D sets out the MORI methodology

3 National Audit Office Report “Giving Customers a Choice – The Introduction ofCompetition into the Domestic Gas Market (paragraph 18).

5

Annex E contains the text of a possible new licence condition for PES and second tier

electricity supply licences

Annex F contains the text of a possible new standard licence condition for domestic gas

suppliers’ licences

1.17 Comments are invited on the issues raised in this document and in particular

Ofgem’s proposals. It would be helpful to receive replies by Friday 31 March.

Responses should be sent to:

Rosalind Cole

Director, Retail Markets

Ofgem

Stockley House

130 Wilton Road

London

SW1V 1LQ

Or by e-mail: Rosalind.Cole@ofgem.gov.uk.

1.18 It is open to respondents to mark all or part of their responses as confidential.

However, we would prefer it if, as far as possible, responses were provided in a form

that can be placed in the Ofgem library. If you have any queries concerning this

document Fran Gillon (0171 932 5883) would be pleased to help.

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2. Regulatory Position

The Electricity Act

2.1 The general duties of the Director General of Electricity Supply (DGES) are set

out in section 3 of the Electricity Act 1989. The DGES must exercise his functions in the

manner he considers is best calculated to secure that all reasonable demands for

electricity are met, to secure that licence holders can finance their licensed activities and

to promote competition in the generation and supply of electricity.

2.2 Subject to these primary duties, the DGES also has a duty to exercise his

functions in the manner he considers is best calculated to protect the interests of

electricity customers in terms of price, quality of service, continuity of supply, to

promote research and development on the part of licence holders in the generation,

transmission and supply of electricity, to protect the public from the dangers arising

from generation, transmission or supply, and to ensure that health and safety promotion

is facilitated within the electricity industry. The DGES also has a duty to take into

account the effect on the environment of the generation, transmission and supply

activities.

The Gas Act

2.3 The general duties of the Director General of Gas Supply (“DGGS”) are set out in

Sections 4 and 4A of the Gas Act 1986. The DGGS must exercise his functions in the

manner he considers is best calculated to secure that all reasonable and economic

demands for gas are met, to secure that licence holders can finance their licensed

activities and to secure effective competition in gas shipping and supply.

2.4 Subject to these primary duties, the DGGS also has a duty to exercise his

functions in the manner he considers is best calculated to protect the interests of gas

customers in terms of price, service, continuity of supply, to promote efficiency and

economy on the part of licence holders and to secure effective competition in new

connections and the laying of gas pipes, and activities ancillary to the shipping and

supply of gas4. In doing so, he shall take into account the effect on the environment and

to protect the public from the dangers of supplying gas.

4 This includes gas metering, meter reading and storage services.

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The Electricity and Gas Suppliers’ Licences

2.5 The Director has no direct powers to prescribe how gas and electricity suppliers

will present price information to customers. However, the electricity and gas supply

licences set out a number of obligations on domestic gas and electricity suppliers to

publish information relating to their principal terms and conditions.

2.6 The electricity supply licences contain conditions relating to contract terms and

customer protection to cover all domestic customers and small business customers

whose annual consumption is 12,000kWh or less (‘designated customers’). The relevant

conditions are set out in Annex B.

2.7 The main safeguards which apply to supply to designated electricity consumers

include:

a) A duty to supply: PESs and any second tier suppliers which notify the

DGES of their intention to supply designated customers must offer to

supply any designated customer who has requested a supply. All

suppliers which supply designated customers must publish their prices

and make available their principal terms and conditions of supply. They

can only seek a deposit or payment through a prepayment meter if the

customer is uncreditworthy.

b) A range of payment options: all electricity suppliers are required to have

available a range of payment methods which customers may use. These

include payment by cash at reasonable locations, cheque, an agreed

monthly amount or quarterly in arrears, and by prepayment meter.

2.8 There are equivalent conditions in the standard conditions of domestic gas

suppliers’ licences. The relevant conditions are set out in Annex C. These include:

a) An obligation to supply as soon as reasonably practicable any domestic

customer who requests a supply. All domestic gas suppliers must publish

their prices and the principal terms and conditions of supply.

b) A range of payment options: all domestic gas suppliers are obliged to

offer customers a range of payment methods. These include payment by

cash at reasonable locations, cheque and postal order, and a choice of

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frequency of payment such as monthly and quarterly in arrears and

monthly payment plans.

2.9 The marketing licence conditions of both the gas and electricity suppliers’

licences also require suppliers to recruit and train their sales agents so as not to mislead

customers in their sales approach. These conditions have had the effect of tightening

up the marketing activities of suppliers and have alleviated some of the concerns about

misleading information being given to customers on prices and other services or goods

available.

Utility Bill

2.10 The Utility Bill 2000, currently before Parliament, will make a number of

important changes to the legislative regime. In particular, under the Bill greater

emphasis will be placed on customer interests in decision-making by the regulatory

Authority. As presently drafted the Bill includes no special provisions dealing with

pricing. Ofgem’s initial view is that the proposals set out in this paper are consistent

with the Bill’s aims to improve customer protection and that, subject to consultation, the

proposed licence conditions should become standard conditions in the new gas and

electricity supply licences.

2.11 All gas customers are presently supplied under either an express contract or a

deemed contract, while electricity customers are either supplied under an express

contract by a second tier supplier or on tariff terms by a PES. Under the Utility Bill, both

gas and electricity will be supplied to domestic customers under contract. In this

document the expression “tariff” is used to include prices for both tariff and contract

customers.

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3. Current Practice

Present Tariff Options

3.1 For most domestic customers there is a large range of competing tariff offers

available. In both gas and electricity most suppliers offer different tariffs depending on

payment method (commonly cash, quarterly credit, direct debit and prepayment meter).

Some suppliers offer discounts for early payment (or surcharges for late payment).

3.2 The structure of charges can also vary between suppliers (indeed some suppliers

offer more than one structure). For example, many suppliers have explicit standing

charges, whilst others do not. Some have differential energy (unit) charges so that the

first tranche of units is charged at a different (usually higher) level than those of

subsequent units. Suppliers may also make different charges for associated services

such as providing replacement keys to prepayment meter customers or making special

visits to customers’ premises.

3.3 Some electricity customers use night rate meters for which the charges for

electricity consumed overnight are lower than those for electricity consumed at other

times and are measured using different meters. For such customers there is an

additional complexity in comparing prices on offer. There is variation in the definition

of the period in which the cheaper rates apply – some suppliers define it as being any

seven hour period between midnight and 8:30am, while others specify what the seven

hour period will be between 10pm and 10am. Suppliers’ charges may also include

regional variations to reflect the regulated PES tariffs.

3.4 As competition has developed, new tariff choices have also become available to

customers. Dual fuel suppliers (where a single supplier offers both gas and electricity)

are common. Some suppliers give additional discounts for duel fuel supplies.

However, duel fuel suppliers are not necessarily the cheapest method for customers to

source both fuels.

3.5 Suppliers are also increasingly offering affinity arrangements with third parties,

including supermarkets, credit card companies and others. In many cases these affinity

arrangements and other tariffs are associated with other benefits such as points,

supermarket loyalty schemes, Air Miles or holiday discounts. Some suppliers offer tariffs

10

to take account of customer interest in eg environmental issues where “green” tariffs

have been developed.

3.6 The range of tariff offers available is generally encouraging. Whilst many

competitors continue to structure their offers to match the pricing structure of the

incumbent suppliers, others are introducing new tariff forms, increasing the range of

choices available to customers. Such developments are an expected and welcome

feature of the competitive market.

Pricing Comparisons by Suppliers

3.7 Against this background, it has not always been straightforward for customers to

compare suppliers’ prices. Although many practices have been reasonable responses to

competitive pressures, the practices of some suppliers have been either misleading or

likely to add to customer confusion in comparing prices. A number of suppliers have

made claims about savings which were not based on comparing similar payment types,

but compared, for example, their direct debit prices with the incumbent’s relatively

expensive late payer tariff.

11

4. Customer Experience

MORI Surveys

4.1 Ofgem (and its predecessor bodies) has commissioned MORI to undertake

independent surveys of customer awareness of, experience of, and attitudes towards the

competitive gas and electricity supply markets. The findings of the surveys are of direct

relevance to the present discussion. The most recent study was published in January

20005. MORI interviewed a representative sample of 2,315 electricity and gas

consumers in Great Britain during September and October 1999. The methodology

used by MORI is set out in Annex D.

Survey Results

4.2 Customers report financial savings as one of the most significant factors in their

decision about whether or not change supplier.

Figure 1: Reasons for Switching (after prompting)

% Electricity Gas

Cheaper prices 87 79

Dual fuel 23 19

Persuasive salesman 11 14

Better service 7 8

Special offers 4 3

Poor service from previous supplier 4 8

Advertising by new supplier 2 5

Recommended by friends 3 4

Base: All Electricity (664) / Gas Switchers (684) Source: MORI

4.3 Price, or perhaps perception of prices, has also been an important consideration

for those who have not switched. Reduced cost is the main thing that would encourage

them to switch.

“Electricity and Gas Competition Review” – research study conducted for Ofgem by MORIpublished in January 2000

12

Figure 2: Reasons for Not Switching (after prompting)

% Electricity Gas

No reason to change/satisfied 70 73

Can’t be bothered 28 28

Lower prices may not be maintained 13 11

Waiting to see what happens 11 11

Don’t know enough about suppliers 9 7

Savings not enough 8 5

Don’t trust other suppliers 7 5

Not been approached 5 5

Suspect poorer service from other

supplier

5 6

Base: All non-switchers Electricity (1,648) / Gas (1,414) Source: MORI

4.4 Although price is stated to be an important consideration in switching (or

deciding not to switch) relatively few customers have obtained pricing or other

information from suppliers.

Figure 3: Customers who have had information from suppliers about electricity and

gas supply and prices

% Supply Information Price and payment terms

information

None 14 36

1 22 21

2 30 25

3 15 7

4+ 14 5

Base All gas/electricity customers (2,315) Source MORI

4.5 Electricity and gas customers who have switched supplier are more likely to say

they have received both general and price and payment terms information from

suppliers but this was usually from only one or two suppliers.

13

4.6 MORI reports that those customers who have information on price and payment

terms generally find it easier than in previous surveys to compare cost differentials.

However there remains a significant minority who find it difficult.

Figure 4 Ease of Comparing Pricing

%

Very Easy 10

Fairly Easy 38

Fairly Difficult 20

Very Difficult 12

Don’t Know 21

Base: All received information on prices (1,464) Source MORI

4.7 Among those who have experienced difficulty in comparing price and payment

terms, the main problem is that information is either unclear or confusing. A general

lack of information is also a problem. This is evident from the one in five customers

who say they have nothing to compare price and payment terms with. One in six of

those customers who find it difficult to compare prices display cynicism and state that

companies always say that their prices are lower than others.

Figure 5 Difficulty in Comparing Prices – Reasons

%

Confusing/not clear 45

Lack of information 36

Difficult to compare like with like 28

Nothing to compare figures to yet 21

None give an exact price 20

Difficult to understand 19

Always say prices are low 17

Base: All who find it difficult to compare (416) Source: MORI

14

4.8 The findings also show that many customers do not know about the relative

prices of different suppliers. When asked whether the new suppliers’ prices were higher

or lower than those of the local PES (for electricity) or British Gas (for gas) nearly a third

replied “Don’t know”.

Figure 6 Prices for New Suppliers compared with incumbent

% Electricity Gas

All higher 2 2

About the same 34 31

All lower 23 26

Some higher some lower 11 12

Don’t know 31 29

Base: (Electricity – All 2,315) (Gas - All on mains gas 2,098) Source: MORI

4.9 There is some evidence that a lack of knowledge about relative prices is

impacting on switching. When non-switchers were asked about the percentage

reduction in bills required for them to consider switching the average response was

about 20%, with many saying they would switch for less. However just over a third of

non-switchers (37%) in the case of electricity and 35% for gas thought that in practice

no savings were achievable.

4.10 It is not just in the case of switching supplier where customer uncertainty about

relative pricing may be having an influence on their behaviour. Many customers can

make considerable savings by switching payment method. However, while they are

content with their current method of payment, many customers display a lack of

awareness regarding the relative costs of the payment method they use. When asked if

they thought that the payment method they currently use to pay for their electricity is the

cheapest (Figure 7), a large proportion of customers either wrongly think that it is or do

not know whether they pay by the cheapest method. While around two-thirds of direct

debit / standing order customers are aware that they are paying by the cheapest method,

there remain three in ten such customers who either do not think it is the cheapest

method (4%) or do not know whether or not it is (28%).

15

4.11 Awareness of price differentials is noticeably lower among those customers who

are not paying by the cheapest method. Around one-quarter of those who pay for

electricity quarterly by cash or cheque (23%) or prepayment meter (25%) wrongly

believe that their current payment method is the cheapest. A significant proportion also

do not know if their chosen payment method is the cheapest – quarterly cash/cheque

(45%don’t know), prepayment meter (33% don’t know).

4.12 However, significant proportions – 32% of cash/cheque payers and 43% of

prepayment meter customers – still pay for their electricity in this way even though they

know it is not the cheapest. This indicates that their reasons for paying in the way that

they do outweigh any potential of the perceived cost savings available from paying by

direct debit. Those who are aware that they are not paying by the cheapest method cite

ease and convenience, and the ability to budget and control payment in a way that they

feel comfortable with, as reasons for continuing to pay in the way that they do. The

picture for gas payment is virtually identical.

Figure 7 Customer Awareness of Relative Cost

Q. Is this the cheapest payment method.

% Direct Debit/

Standing Order

Quarterly Cash/

Cheque

Prepayment Meter

Electricity Gas Electricity Gas Electricity Gas

No 4 4 32 20 43 42

Yes 68 66 23 37 25 25

Don’t

know

28 30 45 43 33 33

Base: All electricity 2,315. All on mains gas 2,098 Source: MORI

4.13 Some caution needs to be exercised in interpreting these figures. In particular,

prepayment meter customers may be using the “cheapest” payment method for them in

the sense that it is the payment method most likely to ensure that they budget

successfully. When asked what their main reasons were for not choosing a cheaper

payment meter option, prepayment customers who knew it was not the cheapest

method gave budgeting and control over payments amongst their main reasons.

However, over a quarter of prepayment meter customers (28% electricity and 27% gas)

16

would take the option of returning to a credit meter if it also meant a reduction in the

price of electricity and gas (including those who would if there was no charge for doing

so). Of those who would change, 28% of electricity customers and 39% of gas

customers would change to direct debit.

4.14 In summary, this review suggests that many customers do not have a good

understanding of how to compare prices both between suppliers and between payment

methods. This is not wholly surprising but these are indications that many customers

find it difficult to compare prices and obtain reliable information. It seems likely that

better information would encourage more customers to switch supplier and/or move to

cheaper payment methods.

4.15 One of the issues which affects customers’ ability to switch between suppliers is

not only how easy it is to switch supplier but also how easy customers perceive it to be.

It has been noted that research undertaken by the OFT in 19986 revealed that vulnerable

consumers were more likely to experience higher search costs and difficulties in

assimilating information than consumers in general. This can mean that such consumers

make inappropriate purchases and hence “experience a loss in economic well-being

similar to the effects brought about by monopoly”.

6 OFT Vulnerable Consumers and Financial Services. The report of the Director General’sInquiry 1998.

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5. Making Information Available to Customers

Discussion

5.1 Customer groups have stressed the importance of good quality customer

information. They have stated that to be useful, information must be readily understood

by customers and relevant to the individual customer’s circumstances.

5.2 Ofgem has been discussing with suppliers and consumer groups some options

for providing better information to customers. The proposals set out in this section build

on these discussions. The chapter considers two aspects of better information. First, the

need for clearer information from the companies themselves about the prices they are

charging to enable customers to make more straightforward comparisons of prices.

Second, the availability of price comparison services which enable customers to search

for the product which best meets their particular needs.

Clearer information for customers

5.3 Although suppliers are required under their licences to make available their

prices to domestic customers, there is no requirement that this should be done in a

standardised way. Suppliers are, however, subject to general consumer legislation on

misleading price indications and to the rules of advertising bodies on the presentation of

pricing claims.

5.4 During 1999 Ofgem worked with the industry to establish whether it would be

possible to develop a standard format in which suppliers would be required to publish

their prices. A number of possible formats were considered. These ranged from

relatively complicated formulations in which the standing charge and a unit charge for

consumption would be shown separately for each tariff displayed on promotional

material, through to a simple formulation based on a total annual bill for a standard

consumption rate. Other issues which were considered were whether there should be a

range of indicators set either as snapshots of consumption levels or covering bands of

consumption levels. Attempts were made to simplify the information using

representations of different types of property to indicate the consumption levels being

illustrated.

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5.5 In response to these proposals suppliers said that any attempt to determine

average consumption levels by size or type of property would be fundamentally

misleading. They argued that there was a range of factors such as property age,

construction method and insulation levels which would materially affect individual

consumption levels. Other factors such as the age and number of occupants play a

major role in determining domestic energy consumption levels in identical properties.

Suppliers were concerned that the approach would result in customer confusion and an

increase in complaints from customers whose annual bill/savings did not match those

set out in the standard table. In addition, the approach did not cater for the pricing

differentials charged by some gas suppliers on non-Transco networks. In general the

industry has appeared reluctant to pursue self-regulatory options for improving the

information available to customers.

5.6 Inevitably any standardised form of costing has its drawbacks. Most customers

will not match the “typical” customers used in illustrations. However, pricing

information presently used by suppliers on promotional material is complex and is not

presented in a way which facilitates ready comparison between different tariffs and

different suppliers. This is likely to discourage customers from comparing prices with

the result that fewer customers switch to cheaper options or that customers will switch

to less suitable tariffs. In the medium term it seems likely that tariff designs will become

more complex as suppliers identify new ways to meet economically different usage

patterns.

5.7 In these circumstances a better means of providing customer confidence in price

comparison material seems appropriate. Ofgem recognises that there are real difficulties

in achieving this given the range of products on offer and the variation in customer

circumstances. However, a carefully designed scheme should be capable of addressing

these issues. Standardised information on interest rates in the financial services sector

and on vehicle fuel consumption data indicate that complex information can be

summarised for customers. Equally, customer experience with standardised data such as

miles per gallon has helped ensure that customers are aware of the benefits and

limitations of such information.

5.8 One approach for the gas and electricity markets would be to calculate an

average usage cost. In practice this is already done for the existing price comparison

19

information published by Ofgem. The typical annual bills are calculated on the basis of

rules about consumption levels. If the scheme is to have more general application, the

set of rules defining the calculations will need to be explicit and cover all relevant

circumstances. These are discussed further below. Once a methodology is identified,

calculating a standardised cost should be reasonably straightforward. It would then be

for suppliers to use this standardised “energy cost index” (eci) in presenting pricing

information. The next sections discuss how such an index would deal with different

consumption levels and an indication of other issues to be addressed in calculating the

index, the presentation of the index, and the circumstances in which it should be used.

Views are invited on the proposed general approach.

Consumption Levels

5.9 In both electricity and gas the levels of consumption of domestic customers vary

widely. The Ofgem pricing factsheets use single standard consumption levels as

follows:

• 3,300 kWh per year for customers on standard electricity tariffs

• 6,600 kWh per year for customers on economy 7 and related supplies (split between

3000 kWh day units and 3600 kWh night units).

• 20,964 kWh per year for gas customers on credit meters

• 12,300 kWh per year for gas customers on prepayment meters

5.10 In practice this provides only a broad guide for customers. Household type,

number of occupants and appliances used would give some further information about

likely overall consumption levels but are not likely to provide an accurate picture. In

any event including such variables would add significantly to the presentational

complexity of the approach. Similarly most customers do not have a ready recollection

of their annual usage levels and, given seasonal and other variations in electricity and

gas consumption, individual quarterly bills can provide only a broad indication of a

customer’s usage.

5.11 An alternative to the single approach would be to identify consumption levels

for “low”, “standard” and “high” users and develop an index for each. This would

provide a greater range of potential comparison points. It would have the advantage of

linking price comparisons more closely to customer usage levels and would allow

20

competitors which have developed tariffs designed for high or low users to make more

relevant statements about their products. This would add some complexity to the basic

approach. If suppliers had to show all three comparison points it would reduce the

clarity of the index, but if suppliers could choose a single consumption level it would

reduce the number of direct comparisons that could be made by customers.

5.12 Our initial view is that we should proceed on the basis of designing three

consumption levels – “high”, “standard” and “low” users, and that the standard level

should be the same as that used in the Ofgem pricing factsheets. To use a different level

may introduce confusion for customers comparing suppliers’ promotional material with

the information set out in the factsheets. It would be for suppliers to decide whether to

present one or more of the indices for each of the tariffs they are presenting to

customers. However our initial view is that suppliers should at least include reference to

the “standard” user index.

Other Issues

5.13 The following gives a first indication of the sort of issues that will need to be

considered in calculating the index:

a) the precise consumption levels to be used in the calculation of the indices;

b) how to take account of tariffs with prices that vary according to the timing of

consumption both from month to month and from hour to hour during a 24

hour period (this will be particularly relevant for more complex tariff designs

in electricity);

c) payment method (our initial view is that the three main payment methods

(direct debit, prepayment and quarterly billed) should be assigned different

indices to facilitate like for like comparisons;

d) whether account should be taken of early pay discounts or late pay penalties

(our initial view is that a standardised payment pattern should be adopted for

quarterly billed indices);

e) whether account should be taken of charges for special services (our initial

view is that unless the additional charge relates to a routine matter and is not

ordinarily made by other suppliers no account should be taken of special

charges);

f) the treatment of regional or other variations in charges (our initial view is

that most regional variations should be identified separately);

21

g) the way in which any dual fuel offers should be treated including any dual

fuel discounts (we would in particular welcome views on whether it would

be both desirable and practical to produce a single index for a dual fuel

supply rather than to require a separate index for each of the electricity and

gas elements of a dual fuel tariff. Our initial view is that a single index would

be desirable if practicable); and,

h) the treatment of other special discounts and non cash benefits such as

vouchers, and other terms with some financial value (our initial view is that

such features should not normally be taken into account in calculation of the

index unless they have a direct cash value. Care will also need to be taken

in relation to the presentation of short-term discounts or introductory offers).

5.14 It should be recognised that the way in which these issues are handled could

have a significant commercial impact on suppliers in that it might change the relative

perceived advantages of existing tariffs. Ofgem will want to be assured that the

approach adopted is reasonable and provides the customer with an accurate picture of

the likely overall relative costs of consumption under the various tariffs offered by a

supplier.

5.15 We have considered whether any explicit account should be taken of service

standard issues in calculating the index. Whilst price is an important consideration in

selecting a tariff, other issues including customer service are also important for

customers. However, it is difficult to place specific values on service level issues.

Information is already published about service issues by Ofgem and further information

is expected to be published in accordance with the Utilities Bill. In these circumstances

we have concluded that including service issues within the general approach to the

indicator would not be appropriate.

We would welcome views on the approach to the methodology underlying the index.

Presenting the Index

5.16 The standardised energy cost index could be calculated and presented as the

monetary value of consumption at the standardised levels. The overall cost of gas and/or

electricity for the predetermined levels of consumption would be calculated using the

details of the company’s tariffs. The question then arises how this should be presented

22

by suppliers to customers. It could be presented as being a typical annual bill, for

example “£357”. This would clearly be most the meaningful approach for customers.

However, as the typical annual bill is unlikely to reflect the individual customer’s bill it

may give rise to unnecessary customer concerns about the accuracy of the bill they

actually pay.

5.17 An alternative would be to present the index in the form of an average unit

charge, for example “5.87p”. This would allow customers to scale the comparison to a

level closer to their own consumption to compare bills. However the publication of a

separate unit charge might be meaningless to customers and could in practice increase

confusion. A common unit based calculation would also raise issues about customer

perceptions of the relative costs of electricity and gas.

5.18 A variation on these approaches would be to calculate the same information but

to present it as a straightforward index – for example “357” or “587”. This would allow

customers to make the same calculations but would avoid highlighting the monetary

link with the index.

5.19 Ofgem’s initial view is that, although an index which was directly related to a

typical bill might be confusing for some customers, it would be more meaningful than

an index in the form of “567”, particularly in relation to dual fuel supply.

5.20 This is one of several areas where direct customer research would be helpful to

identify customer preferences and the implications of the various options.

We would welcome views on how the index should be presented.

When the Index should be used

5.21 If this form of pricing index is to be effective it will need to be widely used by

suppliers and others in presenting and commenting on prices. In whatever way the

index is calculated and presented it will also be important to be clear where and when it

should be used. If the requirement is too narrowly drawn, customers may not become

accustomed to the approach and may therefore still find it hard to obtain information on

comparative prices. If the requirement is drawn too widely it may distort competition

23

between suppliers, place an undue emphasis on price and restrict a supplier’s proper

flexibility in the marketing of their products.

5.22 One approach would be to require all suppliers to quote the index for their

relevant product in any written promotional material dealing with prices and to include

it in any other material (including advertisements) which made specific pricing claims.

Subject to some minimum requirements about font size to ensure legibility it would be

for the company to decide what degree of emphasis to give the index in its material. It

is not intended that the standardised index will replace individual suppliers’ pricing

presentation but rather that it will be presented as an addition to it. This is similar in

effect to the use of interest rate and car fuel usage data in promotional material and

advertising.

5.23 Ofgem does not envisage that suppliers should be required to show the index for

all their tariffs on every occasion where they refer to a particular tariff, but it is intended

that where a supplier refers to a particular tariff it would also publish the relevant index

for that tariff. If suppliers are making specific price comparisons with those of a

competitor then they would be required to publish the index for both tariffs.

5.24 We have also considered whether the use of the index should be extended to

include all communications with customers which make reference to gas and or

electricity prices, including bills and annual statements. We are concerned however

that to do so could increase rather than reduce customer confusion about material

which is fundamentally concerned with identifying the amount which the customer

actually owes the supplier. There may also be systems implications for suppliers and it

could also increase suppliers’ costs, to no great benefit to customers. Ofgem does,

however, see value in extending the requirement to use the index on some written

material sent to customers, for example when informing customers that their tariff has

changed. In this way, customers who wished to switch to another supplier would have

the information available to enable them to make comparisons with the other tariffs on

offer in the market.

5.25 It will be important to ensure that the approach adopted here is readily

understood by suppliers and is in keeping with general advertising and price indication

rules.

24

We would welcome views on the general approach we have proposed.

Introducing the Index

5.26 There are various means by which the use of the index could be promoted.

First, it could develop on a voluntary basis with encouragement from Ofgem and

consumer organisations. If suppliers were to be free to decide whether or not to use the

index, companies which chose not to do so would risk customer dissatisfaction and,

potentially, would find it more difficult to demonstrate that price comparisons were

accurate. The main problem with this approach would be to get the critical mass

necessary to make such a voluntary scheme successful and to draw it to the attention of

customers.

5.27 Alternatively use of the index could be a requirement on all electricity and gas

suppliers. This could be achieved by introducing a condition into the electricity and gas

supply licences.

5.28 Ofgem’s initial view is that use of the eci should be a licence requirement in

order to act as a catalyst for this new arrangement and to ensure the successful

introduction of the scheme. The licence would require each supplier to comply with a

scheme for the index, setting out the detailed rules on calculating the index and the

circumstances in which the index should be used. However, this should be an area

where regulation should act as a catalyst to beneficial change in an increasingly

competitive market rather than requiring continuing oversight. The objective therefore

should be to pass responsibility for the development and implementation of the index to

industry trade bodies so that self-regulation can take over as competition develops.

With this in mind the licence requirement should be in place for a limited duration,

subject to renewal only if the circumstances warrant it. Similarly the rules supporting

the index should be for the industry itself to develop in discussion with interested

parties, perhaps initially subject to Ofgem’s approval. The licence should, however,

provide for Ofgem to implement a scheme for the index if the industry has not brought

forward satisfactory proposals within a defined timescale. The licence would also need

to deal with amendments to the scheme. Draft conditions are set out in Annexes E and F

25

We would welcome views on how the scheme should be implemented and on the

approach set out in the draft licence condition.

Customer Information

5.29 To be effective the index would need to be explained to customers. This will be

particularly important when it is introduced. This should be an area where Ofgem can

work together with consumer bodies and the industry to maximise publicity for the new

arrangements and ensure that clear customer information is provided about the new

scheme.

We would welcome views on the best approach to customer information when the

index scheme is introduced.

Price Comparison Services

5.30 Ofgem already provides comparative information for customers. This sets out

the prices offered by all suppliers, showing the standing charge (if any) and energy

rate(s) for each tariff together with an annual bill for a typical customer. Ofgem will

continue to provide this information for public dissemination. In due course it will be

desirable for us to discuss the issue with the new Gas and Electricity Consumers Council

with a view to the Council taking over responsibility for the publication of such

material.

5.31 At present the pricing comparison documents do not include a specific section

on dual fuel offers. Given the significance of dual fuel offers it would seem appropriate

to include further information on dual fuel deals in future.

5.32 The price comparison sheets are circulated by Ofgem in response to queries to

our public helpline, over 330,000 copies have been circulated so far. In addition, the

sheets are regularly made available for publication in local and national newspapers.

The information is also directly accessible from our web-site.

5.33 Since the electricity and gas markets opened to competition a small number of

firms have been set up to offer customers a price comparison service. Typically, the

service involves assessing relevant features of a customer’s fuel consumption profile and

identifying the supplier whose tariff structure offers the greatest savings. With the

26

development of the internet, these services have increasingly been offered on websites –

examples are Kura and Buy.co.uk. Customers who access such websites are able to

enter the details of their electricity and gas consumption and identify the cheapest

supplier for their particular circumstances. In some cases they can be connected to the

website of the supplier identified as being the cheapest and enter into a contract over

the internet. In addition several suppliers maintain their own web-sites with information

about their products.

5.34 For suppliers, association with such services may lead to a customer being

referred to them and entering into a contract for supply. This can result in lower

acquisition costs – the commission charged by the providers of such services is typically

considerably lower than the cost of acquiring customers through doorstep selling or

telesales. In Ofgem’s view, such services could, in principle, offer a useful service to

customers for whom price is an important feature of their decision to switch. However

these services are largely unregulated and the independence and accuracy of

information provided cannot be assured.

5.35 During 1999 Oftel and consumer groups encouraged the telecommunications

industry to develop a price comparison service for residential customers. From

December 1999, the industry has provided the service on the internet and over the

telephone. Customers with a copy of a recent telephone bill are able to answer some

basic questions to establish which is likely to be the cheapest supplier for the user

profile that most closely matches their individual circumstances. The service currently

covers fixed line connection services operated by British Telecom and four cable

companies that compete with it in that market. However, Oftel expects that the service

will be expanded in time to include indirect access providers.

5.36 The circumstances of the telecommunications market are somewhat different

from those in electricity and gas. Nevertheless, there could well be advantage in

providing price comparison services for customers. To be effective this would need to

cover all active suppliers and all available payment and tariff options. An internet site

would provide an opportunity to enable complex comparisons to be made, taking fuller

account of usage patterns and other relevant information from the customer. Similar

information could be obtained by a telephone based scheme although this is likely to be

at higher cost.

27

5.37 There are a number of options for the provision of this sort of service. Given the

presence of independent parties providing a similar service to the service we envisage, it

does not seem appropriate for Ofgem itself to provide such a service. An alternative

would be for the service to be undertaken by suppliers collectively. This might be

desirable but would be difficult to arrange within a reasonable timescale.

5.38 Our initial view is that the best way forward would be for Ofgem, in discussion

with suppliers and customer groups, to draw up a basic specification for the providers of

such services. In addition, to provide full coverage of all suppliers wishing to

participate, the service would need to operate in a non-discriminatory manner. It should

be possible for customers to enter some basic information about their location, supply

and payment characteristics together with usage patterns and consumption level in order

to produce a good indication of the likely price offerings available.

5.39 Once a specification is determined, Ofgem and/or suppliers would invite third

parties to provide a service to that specification. Services meeting the specification

would be recognised by Ofgem as appropriate providers of pricing comparison services,

and customers who contacted Ofgem about price comparisons would be referred to

them. The services would be able to reference their compliance with the standards set

out in the specification. It would be necessary to undertake some monitoring of the

provision of services to ensure they maintained the requirements of the specification.

The costs of operating the services could either be met by general fees from suppliers or

from sales income generated by the service itself (for example by receiving sales

commissions from suppliers).

We would welcome views on this proposal and, in particular the requirements that

should be specified for providers of these services.

Likely implications of implementing these proposals

5.40 We have given initial consideration to the likely implications of implementing

these proposals for customers, suppliers and Ofgem. It should be possible for the

proposals for an energy cost index to be implemented on the timescales set out in the

next chapter without giving rise to any significant costs for suppliers. The costs of

researching, developing and monitoring the rules of the index scheme (the Price

28

Indication Code) have not been defined but seem highly unlikely to be as much as £1

million. This would be clearly outweighed by the benefits to competition set out below.

The index itself could be implemented in supplier published material without giving rise

to any significant additional costs for suppliers. A customer information campaign about

the index would add to these costs, at least in the first year.

5.41 The provision of price comparison services should also not involve significant

costs for suppliers. The set up and operating costs of such services cannot be forecast

with confidence at this stage. This would depend, inter alia, on expected usage levels

and means of communication. The objective, however, is that such services should be

largely or entirely self-financing. The additional monitoring and enforcement costs

likely to be incurred by Ofgem are unlikely to be significant.

5.42 The extent of the benefits to customers arising from the proposals is difficult to

assess with any confidence. Better information and the more effective operation of the

market in themselves are likely to give rise to significant customer benefits. To put this

in some context, if just an additional 1% of customers switched supplier or payment

method the savings made by customers would exceed £10 million a year.

We would welcome views on the likely implications of implementing our proposals

Summary of Proposals and Issues

5.43 The absence of clear pricing information from all suppliers and customer

uncertainty about the quality and availability of price comparison services is acting

against customers’ interests. Improving information for customers can be achieved in a

manner which does not unduly distort the development of the market and which

enables customers, including the fuel poor, to make more informed choices about

switching payment method and/or supplier. The benefits to customers likely to arise

from these proposals significantly outweigh the modest costs associated with

implementing them.

5.44 In Ofgem’s view there is a strong case for introducing an “energy cost index”

(eci) for use by electricity and gas suppliers trading in the domestic markets. The index

would be calculated in accordance with pre-determined rules. It is for consideration

what form the index should take. There is a range of detailed considerations about the

29

calculation of the index which would need to be resolved. Other issues include the

presentation of the index and the requirements for when it should be used, as well as

how it is to be introduced. Customer views will be important in deciding the right

approach.

5.45 Ofgem also believes that there will be an increasing development of price

comparison services and if customers are to have confidence in using them then the

services should comply with certain basic requirements. These should be drawn up by

Ofgem in discussion with suppliers and customer groups.

Ofgem would welcome views on these proposals and the other issues raised in this

Chapter.

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6. Conclusions

6.1 It is important that all customers should have access to good quality information

to enable them to make informed decisions about the choices they make in selecting

their supplier of electricity and gas and in choosing between tariffs and payment

methods. Ofgem has concluded that the current arrangements for the display of pricing

information by suppliers are not compatible with the interests of customers and the

operation of a flexible, competitive market. Not only does this constrain choice, but it

also inhibits innovation and has a particular impact on low income customers, limiting

their ability to take advantage of the competitive market.

6.2 Ofgem’s view is that there is scope for clearer and more consistent information

from suppliers. This is unlikely to be achieved by a single action and may require a

range of initiatives designed to help all groups of domestic customers identify the likely

costs of different supplier/tariff options. Better informed customers would enhance the

competitive market. These issues involve all domestic customers but are of particular

importance for those in fuel poverty. Better information, designed to ensure that

disadvantaged customers can play an active part in the competitive market and make

informed choices about payment method, is one of the key reforms set out in Ofgem’s

Social Action Plan. However, in developing such initiatives we need to recognise that

regulation in this area could have the effect of distorting pricing policies and limiting

customer choice by giving suppliers particular incentives about the structure of their

charges. Care is also necessary to ensure that the information is both easily understood

but also relevant to varying customer circumstances.

Pricing Factsheets

6.3 Ofgem is of the view that in the short term comparative information of the type

currently provided in our factsheets should continue to be made available to customers.

Energy Cost Index

6.4 In addition Ofgem is of the view that it will be important for the gas and

electricity industry to develop a standard format for an indication of annual charges.

This will enable all customers to make basic comparisons in relation to the prices on

offer in the gas and electricity markets and thus to take advantage of the savings on offer,

both by switching supplier and by switching payment method.

31

6.5 In relation to the appropriate consumption levels to be used for the indices

Ofgem’s view is that it is likely to be appropriate to use the consumption levels used in

Ofgem’s pricing factsheets as the level for the standard user. However it is for

consideration as to what that level and the levels in relation to high level and low level

users should be.

6.6 Ofgem has considered whether an alternative to describing the indicator in

terms of the annual bill of a customer with a standard level of consumption, would be to

describe it as a simple index of price per unit, the unit remaining undefined. This would

have the advantage of reducing the likelihood that customers would confuse the number

set out in the indicator with their actual bills. However, describing the indicator in

terms of an annual bill is more readily understandable and has advantages in relation to

dual fuel supplies. Ofgem’s current view therefore is that it is the more appropriate

basis on which to proceed.

6.7 In Ofgem’s view suppliers should not be required to show all three indices when

presenting a particular tariff but where a supplier refers to a particular tariff it would also

publish the index for the relevant user consumption level for that tariff. If suppliers are

making specific price comparisons with those of a competitor then they would be

required to publish the index for both tariffs.

6.8 Ofgem’s initial view is that a formal requirement to use the index is appropriate

to ensure the successful introduction of the scheme. However this should be an area

where regulation should act as a catalyst to beneficial change in an increasingly

competitive market rather than requiring continuing oversight. Any licence requirement

should therefore be subject to review and require positive renewal if the circumstances

justify continuing regulation in this area.

Price Comparison Services

6.9 Ofgem is of the view that, together with suppliers and customer groups, we

should develop a basic specification with which providers of price comparison services

could comply and which would increase customer confidence in such services.

32

Proposals, Process and Timetable

6.10 Subject to comments on this document, Ofgem is minded to seek industry

agreement for changes in the current regime, as follows:

Electricity Supply Licence Holders

6.11 To seek the agreement of electricity suppliers to introduce a new condition into:

• the England and Wales 2nd tier electricity supply licences

• the England and Wales PES licences;

• the PES provisions of the Scottish composite licences

• the Scottish 2nd tier supply licences

in the manner set out in Annex E.

6.12 The change proposed in this document will fall within the conditions which

form part of the Contract Terms Conditions and will be dealt with in accordance with

the provisions for amendment of those conditions.

6.13 Under these conditions of these Licences, it is necessary that not less than 90 per

cent of electricity suppliers, which are eligible to supply electricity to Designated

Premises 7, both by number and the number of such premises supplied under contract

agree to the modification. The Director is required to allow not less than 28 days from

the giving of notice of the changes for suppliers to express their views on his proposals.

6.14 The Director will obtain from Metering Point Administration System Operators

information showing the number of Designated customers being supplied with

electricity under contract on the date of the Director’s request for information.

6.15 For the purpose of assessing consent or non-consent to the proposal, all

suppliers authorised to supply Designated Premises will be sent a form for return to the

Director on which they will be asked to indicate whether they consent to the

modification or not. That form will also show the number of Designated Premises

supplied under contract for that supplier provided by Meter Point Administration System

Operators and will seek the supplier’s acceptance of that number, for the purposes of

the determination by the Director of the percentage of Designated Premises of suppliers

consenting to the proposed modification. If a supplier regards the number to be used by

33

the Director in respect of his supply as inappropriate he should provide the Director

with an alternative number and a statement of reasons for preferring his number over

that proposed by the Director.

Gas Supply Licence Holders

6.16 To seek the agreement of gas suppliers to introduce a new condition into the

standard conditions of the gas suppliers’ licence in the manner set out in Annex F.

Under the Gas Act 1986, the Director may modify the Standard Conditions of

Licences, where Licence holders agree to such modifications. It is necessary,

under section 23 of that Act, that not less than 90 per cent of licensed gas

suppliers, both by number and by volume of gas supplied, consent to the

modifications. For this purpose, the volume of gas of each supplier is as estimated

by the Director on the basis of information made available to him. The Director is

required to allow not less than 28 days from the giving of notice of the changes for

suppliers to express their views on his proposals.

6.17 The Director will obtain from Transco information showing the volume of gas

supplied by each licensed supplier in the last twelve months. For the purposes of

assessing consent or non-consent to the proposals, licence holders will be sent a form

for return to the Director on which they will be asked to indicate whether they consent

to the modifications or not. That form will also show the estimate of gas volume

provided by Transco for the supplier and will seek the supplier’s acceptance of that

volume, for the purposes of the determination by the Director of the percentage by

volume of suppliers consenting to the proposed modification. If a supplier regards the

volume to be used by the Director in respect of his supply as inappropriate he should

provide the Director with an alternative estimate and a statement of reasons for

preferring his estimate over that proposed by the Director.

6.18 Subject to the comments received in response to this consultation, Ofgem

envisages the following timetable for further work in this area:

• April 2000 Licence conditions amended if necessary following

consultation. Licensees given formal Notice of

7 Domestic Premises and other premises using no more than 12,000 kWh annually.

34

Ofgem’s proposal to modify licences

• May 2000 Closing date for suppliers to make representations

• June 2000 Closing date for suppliers to submit specification

for Price Comparison services

• September 2000 Closing date for suppliers to submit Price

Indication Code to Director for approval

• October 2000 Price Indication Code becomes operational (with

transitional provisions)

Annex A

Annex B

Current 2nd tier electricity supply licence in England and Wales - Condition 43.

Contractual terms

1. Where the Licensee offers to supply electricity to Domestic Premises under

Designated Supply Contracts, it shall have available forms of Designated Supply

Contract which provide for the payment of charges for electricity supplied to

Domestic Premises:

(a) by prepayment through a prepayment meter;

(b) by different methods, including:

(i) by cash, at such places and to such persons as are reasonable in

all the circumstances; and

(ii) by cheque, and

(c) at a reasonable range of different intervals, including:

(i) paying monthly a predetermined sum; and

(ii) paying quarterly in arrears.

2. Before entering into any contract to supply electricity to Domestic Premises

(other than through a prepayment meter) the Licensee shall inform the customer

of and offer to enter into Designated Supply Contracts which comply with sub-

paragraphs 1(b) and (c).

3. The Licensee shall process all requests for a supply of electricity to Designated

Premises without undue preference or undue discrimination.

4. The Licensee shall send copies of each of the forms of Designated Supply

Contract (as revised from time to time) under which it supplies or offers to

supply electricity:

(a) on receipt of a request, to any person;

(b) not later than the date on which it first offers to supply electricity under

each such form of Designated Supply Contract (or revision thereof), to

the Director.

5. The Licensee shall prepare, in respect of each form of Designated Supply

Contract:

(a) a document which sets out an accurate summary of the Principal Terms

of that form of Designated Supply Contract; and

(b) particulars of inducements offered to any person entering into such a

contract which might reasonably be expected materially to influence the

decision whether or not to enter into it.

6. The Licensee shall publish the documents and particulars referred to at

paragraph 5 in a manner that will in the opinion of the Licensee secure adequate

publicity for them, and shall send copies of them to the Director no later than

the date on which they are published.

Current 2nd tier electricity supply licence in England and Wales - Condition 44.

Notification of terms

1. Before entering into any Designated Supply Contract the Licensee shall take all

reasonable steps to draw the attention of the customer to the Principal Terms of

the contract.

2. Where the Licensee has entered into a Designated Supply Contract it shall

(except where it has already done so) provide the customer within 2 working

days of the date of the contract with a copy of its full terms and conditions.

3. Subject to paragraph 4 the Licensee shall, at least 30 days before any Designated

Supply Contract to supply electricity for a specified period is due to expire, send

to the customer:

(a) a written offer to enter into a new contract for supply from the date of

expiry of the existing contract, drawing the attention of the customer to

the Principal Terms relevant to that offer:

(b) an accurate summary of the Principal Terms of other contracts which the

Licensee will make available to the customer; and

(c) details of how the customer can obtain continuity of supply from the

Licensee.

4. Paragraph 3 shall not apply where:

(a) the customer has informed the Licensee that he does not wish to

continue to be supplied by it after the expiry of the existing contract; or

(b) it is not reasonable in all the circumstances for the Licensee to be

required to continue to supply that customer and the Licensee has (at

least 30 days before the contract was due to expire) both notified the

customer to that effect and informed him that he must make

arrangements to obtain a supply from another Electricity Supplier.

5. Where a Designated Supply Contract allows for its unilateral variation (in any

respect) by the Licensee and is so varied to the significant disadvantage of the

customer, the Licensee shall within 10 days of the variation give to the customer

written notice:

(a) of the variation;

(b) of the customer’s right to terminate the contract; and

(c) of the effect of paragraph 6.

6. Where a customer gives to the Licensee a valid notice of termination within 14

days of receiving notice under paragraph 5, the Licensee shall treat the variation

as ineffective and shall neither enforce nor take advantage of it.

7. Where the Licensee believes that any of its customers no longer occupies or is

about to vacate Designated Premises to which it supplies electricity, it shall as

soon as reasonably practicable provide any new occupier of these premises with

an accurate summary of the Principal Terms of contracts it will make available to

him.

Annex C

Current Standard Condition 3 of the Gas Suppliers’ Licence: Standard contractual

terms of supply to domestic customers and return of deposits

1. Subject to paragraphs (3), (4) and (5), the licensee -

(a) shall determine the terms on which it is prepared to enter into a

contract for the supply of gas to a domestic customer and, for the

purposes of this sub-paragraph -

(i) different terms may be determined for different cases or classes

of cases, or for different areas;

(ii) terms as to charges may be expressed as subject to transportation

adjustments within the meaning of paragraph (2) but, in such

case, the licensee shall, if so requested by a potential domestic

customer (within the meaning of standard condition 2), give him

particulars, so far as is reasonably practicable, of the

transportation adjustments (if any) likely to be made to the

charges in respect of the supply of gas to premises specified in

the request;

(iii) the terms shall include ones which correspond, as nearly as may

be (save in so far as they may provide for lower charges), to

those of a deemed contract which would arise in relation to the

supply of gas at any premises by the licensee to a domestic

customer who is in occupation of the premises and, on or after

entering into occupation, first takes gas otherwise than in

pursuance of a contract in a case in which the licensee has

ceased to supply gas to a domestic customer who was his

immediate predecessor in occupation of the premises, and

(iv) so far as the terms provide for charges related to the amount of

gas supplied, subject to paragraph (14), they shall provide that

the number of therms or kilowatt hours supplied shall be

calculated in the same manner as the number of therms or

kilowatt hours conveyed to the premises falls to be calculated in

pursuance of section 12(1) of the Act [or, where the premises in

question are secondary sub-deduct premises, in the same

manner as such number would have fallen to be so calculated if

the gas had been conveyed to those premises by a public gas

transporter;]8

(b) shall give written notice of those terms and of any variation therein

(and if the Director so requires, a revised notice of the terms) to the

Director and shall furnish the Gas Consumers’ Council, and any

person who requests a copy, with a copy of any such notice, and

(c) shall publish, in such manner as in the reasonable opinion of the

licensee will secure adequate publicity for them -

(i) the principal terms determined in accordance with sub-

paragraph (a) and any variation in the principal terms, and

(ii) particulars of any inducements offered to persons who enter into

contracts for the supply of gas, or such contracts containing

particular terms, to the extent to which they might reasonably be

expected to materially affect a person’s decision to enter into a

contract for the supply of gas or a contract containing particular

terms;

and, for the purposes of sub-paragraph (c), “principal terms” means terms as to

charges (and as to whether or not they are expressed as subject to transportation

adjustments within the meaning of paragraph (2)) and such other terms as might

affect the reasonable evaluation of the terms determined in accordance with sub-

paragraph (a).

2. The reference in paragraph (1)(a)(ii) to transportation adjustments is a

reference to -

(a) where the relevant shipper would be required by the relevant

transporter to pay supplemental charges (within the meaning of

condition 6 of the Standard Conditions of Public Gas Transporters’

Licences) in respect of particular premises in a designated area (within

the meaning of that condition), an addition to the charges made in the

case of those premises which equals those supplemental charges;

8 Modified by Secretary of State on 30 November 1996 under standard condition 1(13)(b).

(b) where, in relation to particular premises, the relevant transporter is not

(subject to paragraph (13)) British Gas plc and the aggregate of the

charges made by the relevant transporter and the relevant charges

made by British Gas plc in respect of the conveyance of the gas

supplied to the premises exceeds the relevant charges made by British

Gas plc in respect of the conveyance of gas to comparable premises,

an addition to the charges made in the case of those premises which

equals that excess, and

(c) where, in relation to particular premises, the relevant transporter is not

(subject to paragraph (13)) British Gas plc and the relevant charges

made by British Gas plc in respect of the conveyance of gas to

comparable premises exceed the aggregate of the charges made by the

relevant transporter and the relevant charges made by British Gas plc

in respect of the conveyance of the gas supplied to the premises, a

reduction in the charges made in the case of those premises which

equals that excess;

and, for the purposes of sub-paragraphs (b) and (c), “relevant charges” means so

much of the charges in respect of the conveyance of gas as depend upon where it

is taken out of the transporter’s pipe-line system and “comparable premises” means

premises at which the reasonably expected consumption of gas is similar to that at

the particular premises in question and which are situated in the same area of

Great Britain as those premises.

3. The terms as to charges and otherwise of a contract to supply gas to a

domestic customer shall be such as are agreed between the licensee and the

customer concerned so, however, that -

(a) subject to paragraphs (4) and (5), the terms agreed by the licensee shall

be in conformity with those for the time being determined under

paragraph (1)(a);

(b) where the contract for the supply of gas provides for gas to be supplied

through a pre-payment meter, the licensee shall not require the

customer to make a deposit by way of security for the payment of

charges unless it is reasonable to do so as a result of the conduct of the

customer;

(c) where that contract does not so provide, the licensee shall not require

the customer to make such a deposit which either -

(i) exceeds what is reasonable in all the circumstances of the case,

or

(ii) exceeds the charges payable in respect of the highest aggregate

consumption of gas by the customer reasonably expected to

occur in any period of 6 months during the period of 12 months

following the date on which the deposit is requested.

4. Where the licensee proposes, in pursuance of a single contract, to supply

to a domestic customer both gas and other goods or services relating to the supply

or use of gas -

(a) excluding -

(i) the provision of a meter, of any device or facilities designated by

the Director for the purposes hereof as serving the like purposes

as a pre-payment meter or of pre-payment facilities, and

(ii) any related services or services in respect of the reading of a

meter, and

(b) including, in particular, the provision of a service pipe or the provision

of goods or services designed or calculated to promote the efficient

use of energy,

the contract agreed by the licensee shall identify, separately, the charges to be

made for the supply of gas, for other goods sold, for other goods provided on hire

and for services, and paragraph (5) shall have effect.

5. In such a case -

(a) if the contract is (disregarding any provision for its renewal) for a

specified period, whether or not followed by an indefinite period, and

the aggregate annual rate of the hypothetical charges for the other

goods and services mentioned in paragraph (4), if spread evenly over

the specified period, would exceed £100, adjusted in accordance with

standard condition 36 by reference to the date on which the contract is

executed where it is executed on or after the first anniversary of the

appointed day, paragraphs (1)(a) and (3)(a) shall not apply in relation

to the contract, or, where it is a contract for a specified period

followed by an indefinite period, to the contract so far as it relates to

the specified period, or

(b) if the contract is for an indefinite period and the aggregate annual rate

of the hypothetical charges for the other goods and services mentioned

in paragraph (4), if spread evenly over the period for which the actual

charges therefor are made (“the initial period”), would exceed £100

adjusted as aforesaid, paragraphs (1)(a) and (3)(a) shall not apply to the

contract so far as it relates to the initial period,

and, for the purposes of this paragraph, any reference to the hypothetical charges

for goods sold or provided on hire or for services is a reference to the charges

which would reasonably be expected to be made therefor under a contract which

did not also provide for the supply of gas, and any question arising under this

paragraph as to the amount of any such hypothetical charges shall be determined

by the Director.

6. Subject as hereinafter provided, where, in pursuance of a contract for the

supply of gas, the licensee requires a domestic customer to make a deposit by way

of security for the payment of charges -

(a) unless, having regard to the conduct of the customer, it is reasonable

that the deposit be retained, the licensee shall repay it if either -

(i) all demands made in writing in any period of 12 months for

payments due in respect of the supply of gas have been

complied with by the customer within 28 days after the making

of the demand, or

(ii) no such demands have been made in any period of 12 months

by reason of the customer’s compliance with his contractual

obligations relating to the making of payments for gas,

and shall make such repayment within 2 months of the expiry of the

12 month period in question;

(b) if the licensee ceases to supply gas to the customer and he has paid all

charges in respect of gas supplied to him, it shall repay the deposit;

(c) if the licensee having held the deposit for more than a month repays it

in pursuance of sub-paragraph (a) or (b), it shall pay the customer

simple interest on the deposit at the rate which is from time to time

1% less than the base rate of Barclays Bank PLC or, if there is no such

base rate, less than such base rate as the Director may designate for

the purposes hereof.

7. In paragraphs (3) to (6), “agree” and “require” mean agree and require by

way of a term of the contract9, and cognate expressions shall be construed

accordingly.

8. Paragraphs (9) and (10) shall apply where one gas supplier (“the

transferor”), with the agreement of another gas supplier (“the transferee”), assigns

to that other supplier its rights and liabilities under contracts for the supply of gas

to particular domestic customers whose contracts allow of such assignment (“an

assignment” and “the transferred customers”).

9. Where this paragraph applies and the licensee is the transferor, if it so

elects, paragraph (6)(b) shall not have effect in relation to a deposit on the licensee

ceasing to supply a transferred customer by reason of an assignment but it shall

pass the deposit to the transferee, together with interest thereon calculated as

provided in paragraph (6)(c).

10. Where this paragraph applies and the licensee is the transferee, paragraph

(6) shall have effect, in relation to any deposit passed to it by the transferee, as if

the transferee were the same person in law as the transferor.

11. For the purposes of paragraphs (6) to (10), any reference to a deposit is,

except where the context otherwise requires, a reference to so much of the deposit

as, from time to time, has not been applied to meet charges in respect of the

supply of gas.

12. Notwithstanding the definition of the expression “deposit by way of

security for the payment of charges” in standard condition 1(1), the provisions

contained in paragraphs (6) to (11) shall not apply in relation to a payment which

is not a deposit; but, in relation to a payment of any class or description which

serves the like purpose as a deposit by way of security for the payment of charges,

9 See definition of “contract” in condition 1 above: former tariff scheme deemed domestic customer contracts are

included but not other deemed contracts. For application of conditions 3(1)(a)(iv), (3)(b) and (c) and (7) seecondition 4(7) below.

paragraphs (6) to (11) shall have effect as if they contained such provisions, if any,

as are designated by the Director, for the purposes of this condition generally, as

having, in the case of payments of that class or description, as nearly as may be

and having regard to their nature, an effect corresponding to that of the said

paragraphs in their application in relation to deposits.

13. If the whole or a significant part of the pipe-line system operated by British

Gas plc on the appointed day comes to be operated by another public gas

transporter (“the relevant system”) and that transporter (not being the relevant

transporter) conveys by means of the relevant system the gas that is subsequently

conveyed to particular premises by the relevant transporter then, in relation to

those premises [(or to any secondary sub-deduct premises in relation to which

those premises are relevant primary sub-deduct premises)]10, any reference in

paragraph (2)(b) or (c) to British Gas plc shall have effect as if it were a reference to

that other transporter; and any question arising under this paragraph as to whether

a part of the pipe-line system operated by British Gas plc on the appointed day is a

significant part thereof shall be determined by the Director.

14. It shall be a sufficient compliance with paragraph (1)(a)(iv) if terms

providing for such charges as are there mentioned provide that the number of

therms or kilowatt hours is calculated as there mentioned except -

(a) in relation to gas supplied during the period of 10 months beginning

with the appointed day or such longer period as the Director may

accept in the case of this sub-paragraph, for the purposes of this

condition generally, that no adjustment is made in respect of a

temperature and pressure conversion factor within the meaning of

regulations from time to time in force under section 12 of the Act, or

(b) in relation to gas supplied during the period of 10 months beginning

with the appointed day or such longer period as the Director may

accept in the case of this sub-paragraph, for the purposes of this

condition generally, and without prejudice to the application also of

sub-paragraph (a), that the calorific value of the gas is determined on a

weekly basis from daily calorific values in a manner which does not

unduly discriminate between customers and is not prejudicial to their

interests, and any question arising under this sub-paragraph as to

whether that manner satisfies those criteria shall be determined by the

Director.

15. Where, in pursuance of paragraph (14)(a), the number of therms or kilowatt

hours of gas supplied is calculated without any such adjustment as is there

mentioned, the terms determined under paragraph (1)(a) shall provide that, on

such an adjustment coming to be made, there shall be a consequential reduction

in the charges which would have been made for therms or kilowatt hours of gas

supplied had the adjustment continued not to be made.

Current Standard Condition 10 of the Gas Suppliers’ Licence: Methods of

payment of charges for gas

1. Except where the licensee requires that the supply of gas be taken through

a pre-payment meter, it shall afford to a domestic customer using gas for domestic

purposes the opportunity to pay charges in respect of the supply of gas in a variety

of ways including, in particular -

(a) by cash at such places or to such persons as the licensee may

reasonably determine;

(b) by cheque, and

(c) by postal order,

and if the licensee requests a deposit by way of security for the payment of charges

as a condition of making a supply of gas available to the customer, but the

customer is unwilling or unable to pay it, the licensee shall agree to his taking his

supply of gas through a prepayment meter if that is safe and practical.

2. In the case of the supply of gas under a contract, otherwise than through a

prepayment meter, the licensee shall afford to a domestic customer using gas for

domestic purposes a reasonable choice of terms as to the frequency of payments in

respect of the supply of gas including, in particular –

(a) the making (in a reasonable manner specified by the licensee) of

monthly payments of a predetermined amount to be applied in

meeting charges for gas supplied as and when they become due, and

10 Modified by Secretary of State on 30 November 1996 under standard condition 1(13)(b).

(b) one of the following, namely –

(i) the settling quarterly of a quarterly bill for gas supplied;

(ii) the settling monthly of a monthly bill for gas supplied, and

(iii) the settling quarterly of such monthly bills,

unless, having regard to the special circumstances of a particular case, the Director

permits otherwise.

3. The terms determined by the licensee under standard condition 3(1) shall

include terms in respect of all the ways of making payments mentioned in

paragraph (1), in respect of the frequency mentioned in paragraph (2)(a) and in

respect of one of the frequencies mentioned in paragraph (2)(b).

4. The terms contained in the licensee’s scheme under paragraph 8 of

Schedule 2B to the Act, in its application where gas is not supplied in pursuance of

directions given under standard condition 5, shall include terms in respect of all

the ways of making payments mentioned in paragraph (1) and in respect of one of

the frequencies mentioned in paragraph (2)(b).

Annex D

Methodology for the Mori survey

1. A total of 2,315 interviews was conducted with domestic electricity and

gas consumers. Interviews were conducted with the person wholly or jointly

responsible for paying the household’s electricity and gas bills and who would

make the decision to change supplier, either on their own or in consultation with

another household member. The proportion of electricity ‘switchers’ was boosted

to allow for their separate analysis.

2. To ensure that the results are representative of the GB population, the data

have been weighted to the known profile of households by age, social class and

working status of head of household, as well as by the Mosaic life code of

Enumeration Districts (EDs), and the percentage of electricity and gas switchers

understood to be in these areas at the time of fieldwork - that is, 11% for

electricity and 25% for gas. Data entry and analysis were carried out by

Independent Data Analysis.

3. All interviews were conducted face-to-face, in-home, between 6th

September and 13th October 1999. Fieldwork was carried out by MORI/Field &

Tab. Interviewers were provided with a list of addresses within each sampling

point (ED). They were instructed to leave at least three doors between each call.

Half the interviews conducted by each interviewer were carried out in the

evenings or at the weekend.

Annex E

DRAFT LICENCE CONDITION FOR ELECTRICITY SUPPLIERS’ LICENCES

Comparing Electricity Prices – condition to be inserted as follows:

Condition 42A of England and Wales Standard PES licence

Condition 70A in the separated PES licence

Condition 51A in the England and Wales second tier supply licence

Condition 37A in the Scottish composite licence

Condition 52A in the Scottish second tier supply licence

1. This Condition shall cease to have effect on a date (the “termination date”)

which shall be 31 March 2002, provided that:

a) if the Director, after consultation with the Licensee, all other Electricity

Suppliers, the electricity consumers’ committees and such other persons

or bodies as in the opinion of the Director are representative of those

likely to be affected, gives notice for the purposes of this Condition

generally:

i) by publishing the notice in such a manner as the Director

considers appropriate for the purpose of bringing it to the

attention of person likely to be affected by it; and

ii) by sending a copy of the notice to all Electricity Suppliers and

electricity consumers’ committees,

that he considers that the development of competition in electricity

supply is such as to require the continuation of any part of this Condition

until such date – not later than two years from the termination date - as

may be specified in the notice (the “new termination date”), then such

part of this Condition as may be specified in the notice shall continue to

apply as if for the termination date there were substituted the new

termination date; and

b) notice under sub-paragraph (a) may be given on more than one occasion.

2. The Licensee shall not, in relation to any information which it makes available or

is made available on its behalf to Domestic Customers, make any statement

about:

a) the terms in respect of price offered by the Licensee or any affiliate or

related undertaking of the Licensee, and/or

b) the terms in respect of price offered by any other licensed supplier

for the supply of electricity unless the statement is accompanied by a statement

made in compliance with a written code of practice prepared by the Licensee

(whether alone or in conjunction with other suppliers) and approved by the

Director for that purpose (‘a Price Indication Code’) or, in the absence of such

code, the price indication criteria specified from time to time by the Director and

notified to the Licensee for that purpose (‘the Price Indication Criteria’).

3. The purpose of the Price Indication Code and the Price Indication Criteria shall

be to provide a method by which Domestic Customers can readily compare the

terms relating to price offered by or on behalf of the Licensee with other terms

relating to price which are available to Domestic Customers in a manner which

is not misleading to consumers and is not unfairly prejudicial to any supplier,

and in particular:

(a) to identify and describe an appropriate index or indices of the cost of

supplying electricity to Domestic Customers and the method by which

such index is calculated. That index may include different provisions for

different cases such as the means by which customers make payment for

electricity, the amount of electricity consumed and the level and timing

of the charges levied by the supplier;

b) to set out the circumstances in which such an index or indices should be

used in communication with Domestic Customers and in advertising and

other material produced by on behalf of the Licensee through which

information may be obtained by Domestic Customers about the prices to

be charged by the Licensee; and

c) to incorporate such other provisions including provisions concerning

procedures for the amendment of the Price Indication Code as may be

requisite.

4. A Price Indication Code shall not be amended without the prior consent of the

Director.

5. The Director may at any time direct the Licensee to revise its Price Indication

Code in such manner as the Director may consider appropriate, and may further

direct that until such revision has been effected to the approval of the Director,

the Price Indication Criteria shall apply to the Licensee in substitution for, and to

the exclusion of, the Licensee’s Price Indication Code.

Annex F

DRAFT STANDARD CONDITION 14B FOR GAS SUPPLIERS’ LICENCES

Condition 14B: Comparing Gas Prices

1. This Condition shall cease to have effect on a date (the “termination date”)

which shall be 31 March 2002, provided that:

a) if the Director, after consultation with gas suppliers licensed under

section 7A (1) (a) of the Act whose licences include this condition and

the Gas Consumers’ Council, gives notice for the purposes of this

condition generally:

i) by publishing the notice in such a manner as the Director

considers appropriate for the purpose of bringing it to the

attention of person likely to be affected by it; and

ii) by sending a copy of the notice to every such gas supplier, to the

Secretary of State and to the Gas Consumers’ Council,

that he considers that the development of competition is such as to

require the continuation of any part of this condition until such date not

later than two years from the termination date as may be specified in the

notice (the new termination date), then such part of this condition as may

be specified in the notice, shall continue to apply as if for the termination

date there were substituted the new termination date; and

b) notice under sub-paragraph (a) may be given on more than one occasion.

2. The licensee shall not, in relation to any information which it makes available or

is made available on its behalf to domestic customers, make any statement

about:

a) the terms in respect of price offered by the licensee or its related persons,

and/or

b) the terms in respect of price offered by any other licensed supplier

for the supply of gas unless the statement is accompanied by a statement made

in compliance with a written code of practice prepared by the licensee (whether

alone or in conjunction with other suppliers) and approved by the Director for

that purpose (‘a Price Indication Code’) or, in the absence of such code, the

price indication criteria specified from time to time by the Director and notified

to the licensee for that purpose (‘the Price Indication Criteria’).

3. The purpose of the Price Indication Code and the Price Indication Criteria shall

be to provide a method by which domestic customers can readily compare the

terms relating to price offered by or on behalf of the licensee with other terms

relating to price which are available to domestic customers, in a manner which

is not misleading to consumers and is not unfairly prejudicial to any supplier,

and in particular:

(a) to identify and describe an appropriate index or indices of the cost of

supplying gas to domestic customers and the method by which such

index is calculated. That index may include different provisions for

different cases such as the means by which customers make payment for

gas, the amount of gas consumed and the level and timing of the charges

levied by the supplier;

b) to set out the circumstances in which such an index or indices should be

used in communication with domestic customers and in advertising and

other material produced by on behalf of the licensee through which

information may be obtained by domestic customers about the prices to

be charged by the licensee; and

c) to incorporate such other provisions including provisions concerning

procedures for the amendment of the Price Indication Code as may be

requisite.

4. A Price Indication Code shall not be amended without the prior consent of the

Director.

5. The Director may at any time direct the licensee to revise its Price Indication

Code in such manner as the Director may consider appropriate, and may further

direct that until such revision has been effected to the approval of the Director,

the Price Indication Criteria shall apply to the licensee in substitution for, and to

the exclusion of, the licensee’s Price Indication Code.