There are around 3 million households in Great Britain who effectively face a lottery in the current energy market, in terms of price and service. These customers, who are on Economy 7 or similar electricity tariffs, represent around 10% of all households, and are not getting the price protection they deserve.

While in principle these customers are protected by the Ofgem price cap and the government Energy Price Guarantee, in practice regulation is failing them.

Moreover, customers on Economy 7 are typically young people in rented accommodation or elderly / disabled people on low or very low incomes – and therefore in more vulnerable situations than many, and need greater, not less protection, especially as we face an energy crisis.

Following a roundtable hosted by Sustainability First to discuss the report Maxine Frerk produced for Glen Dimplex Heating & Ventilation, we have written an open letter to Ofgem calling on the regulator to give this neglected group of customers the attention they deserve.

Specifically, Sustainability First is calling on Ofgem to review how these customers are treated under the price cap, improve the transparency around the prices they are charged, and ensure suppliers comply with their licence obligations in their treatment of customers.

Economy 7 is a tariff that differentiates how much customers are charged depending on when they use their electricity. It was designed for people who have storage heaters that are charged up overnight and then release their heat during the day. The tariff gives customers 7 hours of cheaper electricity at night but with a more expensive rate than standard tariffs during the day.

One major concern is that Ofgem allows suppliers flexibility to set their relative day and night rates as they wish, provided that the weighted average of the two rates is below the cap that Ofgem has set (where Ofgem assumes 42% of electricity is used at night). This gives suppliers significant f discretion in how they set their rates and creates a lottery for customers. For example, in the Eastern region (as of Jan 2023) the wide range for direct debit is shown in the table below (with other suppliers falling between these two extremes).

In both cases this equates to an average of 34.6p/kWh on Ofgem’s calculation – but customers will see a huge difference in their bill depending how much of their energy use is actually at night. To call this a regulated tariff is a misnomer.

While very few suppliers provide a full schedule of their tariffs, it is clear that the balance of day and night rates also varies not only by region, (North Scotland for example typically has less generous night rates) but also by payment method (with EDF in the Eastern region offering a night rate of 1p/kWh for Pay As You Go).

Lack of transparency 

For customers who have storage heaters and hot-water tanks that they charge at night, an Economy 7 tariff is almost certainly still the best option – and (if you are with the right supplier) there are some very good value deals available for customers with high night usage. 

However, there are a large number of households – around 1.5 million – who are on an Economy 7 tariff but who do not have storage heating, and who could now be paying hundreds of pounds a year more than they would on a standard single rate tariff.

Consumer advice agencies at our roundtable reported that they were struggling to explain the price changes to Economy 7 customers given the limited information available from BEIS and Ofgem. The lack of transparency on tariffs also made it hard for them to deliver advice on what action to take (eg on whether customers would be better off on a single rate tariff).

Concerns were also voiced about how some suppliers communicated with customers around price changes and whether, given their responsibilities around treating customers fairly, suppliers should be more proactive in moving customers onto single rate tariffs when Economy 7 is clearly not suitable for them.

While Economy 7 is the most common, there are other so called “multi rate” tariffs – such as Economy 10 or Total Heat Total Control – which can be good for customers with storage heating but where the complexity and lack of transparency is an even bigger issue.

Other issues with Ofgem's price cap

As well as the “tariff lottery” that exists we have concerns about other aspects of the design of the price cap and that:

• Economy 7 customers are being overcharged on average by around £100 each year  because in setting the price cap Ofgem does not take account of the fact that these customers use relatively more electricity at night when wholesale electricity prices are lower; and
• The interactions between the Ofgem price cap and the Energy Price Guarantee mean that Economy 7 customers are seeing their prices change every quarter when for most customers they are being held constant through to April 2023. In January Economy 7 customers saw an average price increase of 8%– with some facing much larger increases depending on their pattern of usage.

Why this matters 

The profile of those on Economy 7 shows they are not only often vulnerable but also often disengaged;  therefore  Ofgem should be protecting them as a priority in the current energy crisis. At around 10% of households1 this is a significant part of the market that merits more attention.

Addressing this issue is also important in laying the ground for the net zero transition. As highlighted in MP Chris Skidmore’s Net Zero Review there is an important role for what he termed “overnight tariffs” to encourage different energy use (specifically the efficient charging of electric vehicles). It is therefore vital that Ofgem understand the issues that customers on these tariffs face and how to ensure these customers are suitably protected.  In its recent consultation on Delivering a Smart and Secure Electricity system, BEIS acknowledges the important role of storage heating in providing demand-side flexibility, and as part of the transition to decarbonised heat.  However, this requires suitable tariffs on offer. If not, we risk seeing people move from storage heating to direct electric heating, increasing pressure on the system at peak times.

Summary of our asks 

In the open letter that we sent to Ofgem we called on them to include a focus on Economy 7 and multi-rate tariffs across their forward work programme. In particular we asked that:

1. In its programme of work for the Price Cap, Ofgem should include a review of the Economy 7 arrangements as a priority, including reviewing how wholesale energy costs are calculated, and how suppliers are exploiting the flexibility they have around relative day-night rates. They should also work with BEIS on the interactions with the Energy Price Guarantee.
2. terms of communications, Ofgem should take steps to improve transparency around Economy 7 tariffs under the price cap both on its own website and by requiring suppliers to publish schedules of their Economy 7 tariffs.
3. Ofgem should carry out a Market Compliance Review of how suppliers are treating Economy 7 customers including whether their “treating customers fairly” obligations require them to be more proactive in contacting customers who are evidently not on a suitable tariff for their patterns of usage; and
4. Ofgem should assess what additional data it needs to effectively monitor and oversee the Economy 7 and multi-rate retail market.