I wonder why PP haven't offered variable tariff for about a week now…
Some customers particularly students and short term renters would want a variable tariff so all of those groups are disenfranchised, as are those who don’t feel comfortable choosing a long term fix, and the shorter term 12mo. fix is significantly more expensive than the 24mo. fix.
I must admit I’ve not come across a situation where an energy co. doesn't offer a variable tariff, in fact I always assumed it was an Ofgem requirement, but obviously not so otherwise there would be one.
What’s going on?
I’ll just throw this in while I’m here..
an excerpt - see emboldened text
Why did Pure Planet ask for an exemption?
Pure Planet is the only UK energy supplier using what it calls a “membership fee model”.
Almost all energy suppliers make their profits from marking up the price of energy and additional standing charges billed to customers.
Pure Planet promises its customers that it’s a “no mark up” supplier. The company’s per-unit price is calculated to cover only the wholesale energy price along with other costs it can’t avoid, including energy transport, government levies, green taxes and VAT.
Instead, it charges a membership fee, currently £8.00 a month for electricity or £16 for dual fuel, which is where the supplier gets its profit from. In reality, this is simply a higher-than-normal standing charge rebranded to make it sound a bit sexier.
The firm is also somewhat unusual in that it only offers its customers one variable tariff.
Pure Planet has successfully argued that the cap shouldn’t apply to it due to the unique business model it uses.
The exemption, officially called “directions for alternative compliance assessment”, was first granted to Pure Planet in January 2019 and the new extension allows the firm to continue with this model until September 2020, as long as the supplier fulfills certain additional obligations set down for it by Ofgem.
How does Ofgem decide suppliers are following the rules?
The regulator has two methods to monitor how well suppliers are following its directives.
The first method looks at standing charges and the per-kWh of energy to see if they are level with or below the price cap rate.
energy price changes
The second option Ofgem has is to compare the total cost for a customer’s usage level with a supplier against the total cost on the price cap tariff and check if it is equal or below that total.
Ofgem typically uses the first method, so Pure Planet’s problem was that its standing charge/membership fee means that a small number of its customers with low levels of energy usage are paying more than the price cap allows, although the vast majority of customers would not pay more than the price cap tariff.
Pure Planet also argued that because they offer only one tariff the definition of 'default' or 'standard variable' tariffs doesn’t properly apply to its business model and because almost all customers have actively chosen it when switching to the firm.
The legislation governing the cap allows Ofgem to exempt suppliers from the default tariff cap if the tariff has been actively chosen by the customer and if it supports the production of renewable energy.
While agreeing to allow the supplier to continue business as usual until September 2020, the regulator reminded Pure Planet that its exemption comes with additional obligations:
The number of low-usage customers affected by the higher standing charge must be kept as low as possible. Ofgem confirmed that it was satisfied the supplier has been meeting this condition so far.
Customers who have been overcharged should be refunded the difference within 30 days of the end of a price cap period. Ofgem said this condition had not been met to its satisfaction. Pure Planet has renewed its promise to customers that it will credit them with any amount in excess of the cap at the end of each price cap period.
The third condition set by the energy regulator was that the company should point customers to more suitable tariffs if they were not getting the best deal for their needs. Ofgem stated that it was not satisfied with Pure Planet’s performance in this area either. Given the company only offers one tariff this means potentially sending customers to competitors, so its failure to meet this obligation is somewhat understandable.
Ofgem said that the extension could be seen as a way for Pure Planet to either show it can meet all the conditions successfully and apply for another extension by June 2020 or, if it cannot meet the conditions, it has time to change its business model to comply with the energy price cap in line with other companies.
Do other suppliers get exemptions?
Ofgem does have some flexibility when it comes to the price cap and Ecotricity, Good Energy and Green Energy UK were given permanent exemptions from the price cap for their SVTs.
These suppliers had argued that, because of their investment in and direct purchase of green energy, their SVTs were necessarily higher than those allowed by the price cap.
What’s more, as their customers had chosen them specifically to support clean energy despite the higher prices, they should be given a permanent exemption, known as a derogation, from the cap.
However, given Pure Planet’s position as a mid-range supplier that might not be a strategy it decides to adopt.