Consumer choice and the energy market

We are told that choice is a pillar of all that is right and good in a consumer market. In the world of energy market regulation, choice sits up there above even fairness and competitiveness as a core value to uphold at all cost. At a time when we are questioning every aspect of the way in which we buy, use and generate energy, the supposition that choice is and should remain a core deliverable of a well-functioning energy market remains beyond scrutiny.

Choice does feel like a benign tenet that is relatively easy to accept or to pass over without examination. As a bottom line, customers should have the freedom to choose, to select from available options what is best for them according to their needs or desires. Choice in this instance seems to align closely with fairness and freedom – to choose for yourself rather than have someone choose for you – the freedom to choose, the right to choose. If you have had the freedom to choose, then you are at least partly responsible for what you get.

So what do we know about our choices in the consumer energy market. One thing we have learnt is that despite a decade of substantial change, and a huge increase in new entrant suppliers, the majority of consumers do not exercise choice. The large majority of UK households have never made an active choice regarding their energy supply and this pattern continues despite a whole host of national initiatives to promote price comparison and switching. Not switching is more common amongst low-income households and those who are the most vulnerable to the ill effects of living with a restricted energy supply due to unaffordability. Non-switchers are characterised as ‘inactive’ ‘non-participants’ or ‘disengaged’.

Some households have switched and continue to do so, but the majority remain with whichever incumbent they inherited with their property on whichever standard rate tariff the supplier has placed them. This could be a choice. I would like to pose a different explanation, one that relates more fundamentally to the product/service that is being paid for and how we experience it.

Domestic energy supply is not something the vast majority of consumers can readily opt out from consuming. Regardless exactly how and how much we use it once it arrives to our home, we are going to buy energy. As consumers, when we think about energy we think about the ways in which we interface with it – the plugging in, the turning on, the heating up and so forth. We think about topping up the meter, making sure there is enough for the direct debit, or sending off the quarterly payment. None of this changes according to which supplier we are ‘with’ because what we are buying is a homogenous product – there is no ‘deluxe’ energy supply after all. If we have an energy problem – whether an unaffordable bill, a power cut, a broken boiler or a flickering lightbulb – it won’t be solved by our supplier, or by switching to another. So in every way consumers experience and interact with energy, choice doesn’t make a material difference to the day-to-day experience. So is it surprising that most consumers do not exercise choice?

With this is mind, I suggest that it could be in the best interests of energy consumers if choice were demoted from the highest-order value in regulation of the consumer market, to be replaced in the top spot by other values which more effectively contribute to consumer interest. I suggest an ethically-driven regulatory framework which prioritises affordability, sustainability and the flexibility to benefit from changes to how energy is metered and balanced in future. Providing vulnerable households with greater support and protection should be paramount to every aspect of supply regulation.

This is not to say that consumers should have no choice to switch suppliers or tariffs should they wish to, there are savings to be made and much variation in terms of customer service. Rather it is to suggest that those who do not exercise choice should not be penalised with the worst deal but instead defaulted to a tariff which represents a balanced version of consumer best interests.