Domestic bulk LPG suppliers: unfair contract terms

Office of Fair Trading (OFT) closed consumer enforcement case.

From:
Competition and Markets Authority
Published
1 March 2012
Case type:
Consumer enforcement
Case state:
Closed
Market sector:
Oil and gas refining and petrochemicals
Outcome:
Consumer enforcement - undertakings
Opened:
1 November 2011
Closed:
1 March 2012

Case information

Complainant: OFT own initiative, following the OFT's Off-Grid Energy Market Study published in October 2011

Case reference: MP-SIP18-21, MP-SIP23

Relevant instruments: Enterprise Act 2002, Unfair Terms in Consumer Contracts Regulations 1999, Consumer Protection from Unfair Trading Regulations 2008

Issue

This action follows the publication of the OFT's Off-Grid Energy market study, which identified concerns that some suppliers may not be treating their customers fairly. The OFT was concerned by potentially unfair terms in contracts for the domestic supply of bulk LPG, and that some aspects of other customer communications may potentially be misleading.

Summary of work

During the course of the Off-Grid Energy Market Study, the OFT received complaints that some people may be locked into domestic bulk LPG contracts with significant and unavoidable price increases. On investigation we found a mixed picture, with some but not all suppliers offering customers the opportunity to exit the contract in the event of prices increasing beyond a certain threshold.

The OFT worked with the major bulk LPG suppliers in the UK to secure improvements to the clarity of their terms and conditions and other relevant customer communications, so that their domestic customers can better understand how prices can move, their switching and termination rights, and the associated exit costs.

The major UK suppliers of domestic bulk LPG ('the major suppliers') are:

  • Avanti Gas Limited (a subsidiary of UGI Corporation)

  • BP Oil UK Limited trading as BP Gas (a subsidiary of BP plc)

  • Calor Gas Limited and its sister company Calor Gas Northern Ireland

    Limited (both subsidiaries of SHV Holdings NV)

  • Flogas UK Limited and DCC Energy Limited trading as Flogas Northern Ireland (both subsidiaries of DCC plc). 

The major suppliers have voluntarily agreed to make changes to their relevant documents to address what were in the OFT's view, in varying degrees, potentially unfair and/or misleading terms. The suppliers have engaged constructively with the OFT in this process and we appreciate their co-operation.

The concerns raised by the OFT varied by supplier and primarily related to two areas:

  • improved and/or clearer termination/switching/cancellation rights

  • consistency with the Competition Commission (CC) Orders.

All suppliers made improvements to their terms and conditions to address our concerns. Furthermore, Calor Gas Northern Ireland Limited, Flogas UK Limited, and DCC Energy Limited trading as Flogas Northern Ireland, agreed to make changes to improve the cancellation rights offered to customers when prices rise beyond a specified threshold.

The major suppliers have agreed to make the relevant changes in their future new contracts and to offer the same benefits to customers on existing contracts.

A number of the changes are to clarify current practice in order to improve transparency for the consumer, and do not necessarily mean that changes were needed to the suppliers' actual business practices.

The main areas where improvements have been made are described in more detail below. A summary of key changes will also be published on the OFT's Consumer Regulations Website shortly. 

Termination/cancellation rights

The OFT has sought improvements in termination clauses in order to clarify, or to better balance, the rights of suppliers and customers.

Agreements to amend price variation clauses

In particular, the OFT secured amendments to the contracts of Calor Gas Northern Ireland, Flogas UK and DCC Energy trading as Flogas Northern Ireland to allow customers to cancel their agreement in the event of a price increase beyond a specified threshold. Previously, these suppliers' contracts did not allow such cancellation rights.

Calor Gas Northern Ireland, Flogas UK and DCC Energy have all signed undertakings to change the price variation terms in their future new contracts and to offer customers on existing contracts the same benefits as new customers when the price goes up beyond a specified threshold. These companies will also, in future, publish their terms and conditions on their websites.

No further action was required in respect of Avanti Gas, BP Gas and Calor Gas, whose terms and conditions contained terms allowing customers to cancel the agreement in the event of a price increase beyond a specified threshold.

Other improvements include drawing customers' attention to their inherent rights, such as their right to cancel if the supplier commits a very serious breach of their obligations.

The Competition Commission Orders

Background

The OFT referred the domestic bulk LPG market in the UK to the CC in 2004. The CC published a report on its investigation into this market in 2006. The CC identified adverse effects on competition in the market and made two Orders which sought to remedy these concerns, taking effect in 2009. One Order applies to domestic customers supplied from individual bulk LPG tanks. The other Order applies to domestic customers who share a bulk LPG tank (metered estate customers). The OFT is responsible for monitoring and enforcing the Orders.

For more information about the CC investigation and the Orders, please see the case page.

See the FAQs published by the OFT about these Orders.

Agreements to clarify switching options and costs

The Orders aim to make it easier for domestic bulk LPG customers to switch between suppliers. For this purpose they set out, among other provisions, a maximum two year limit once a customer enters a new agreement before the customer can switch suppliers (the exclusivity period), timeframes for switching and restrictions on switching costs.

Where customers are allowed by the terms of their contract to terminate their contract, whether within or outside their exclusivity period, customers should be able to switch supplier according to the process set out in the Orders. This means that the customer will not bear the costs of tank transfer between suppliers. Nor will the customer bear any direct costs associated with the removal of a tank where required in order for their new supplier to install a new tank. 

The major suppliers have agreed to amend their documents where necessary to improve clarity regarding the exclusivity period, the circumstances in which termination and/or switching can occur and/or the above costs of switching.

We note that in order for a metered estate to switch supplier under the Orders, all metered estate customers must be eligible to switch and agree to switch. However, an individual customer, where eligible to terminate their agreement, could instead switch to an individual bulk LPG tank or alternative form of energy supply.

Agreements to amend communications about the end of exclusivity periods

A supplier is also required to write to its customers to inform them about their eligibility to switch at the end of their exclusivity period. At this time, a customer can:

  1. Immediately give notice to switch to a new supplier. 
  2. Continue with their current contract, with the ability to give notice to switch at any time. 
  3. Sign a new contract with their existing supplier, which will initiate a new exclusivity period (this can be up to two years) during which switching is prohibited. This may be attractive to consumers, for example where the supplier offers sufficient incentives to sign a new contract that outweigh the requirement for exclusivity.  

Except for Calor Gas Northern Ireland where this was not a concern, all the major suppliers have also agreed to amend the required communications to clarify the above options, in particular confirming that customers do not need to immediately enter into a new contract unless they wish to do so.  

Conclusion

The OFT has aimed to secure improved and clearer terms for domestic bulk LPG consumers, particularly in respect of their switching and cancellation rights. We have achieved this through voluntary agreements from the major suppliers stated above to implement appropriate changes and we appreciate these suppliers' cooperation.

It is important for a competitive market that consumers are able to choose suppliers. This involves being able to switch suppliers and to shop around effectively; and consumers rely on transparency of information to be able to make informed choices. Our intervention should help in these respects:

  • Better balanced and clearer switching and cancellation rights can help consumers exercise choice in the market and thereby improve competition. Consumers can benefit from the CC Orders to switch more easily and the changes agreed could, by improving such opportunities to switch, accelerate the impact of the CC Orders. 

  • It is also important that people can shop around and make informed decisions about which suppliers to use. The changes secured will make it easier for people buying domestic bulk LPG to compare deals on offer. Suppliers manage pricing differently over the course of a contract and consumers should be aware of differences in price variation and cancellation rights, alongside the initial price offered, when making a purchasing decision. This is particularly important where energy costs may continue to be high and volatile.

  • Finally, we note that we have worked with the major suppliers so that we could quickly achieve improvements for the large majority of domestic bulk LPG customers in the UK. However, the OFT and/or local authority Trading Standards Services can take action wherever it identifies further concerns. We therefore expect other, smaller suppliers to take note of these voluntary agreements and, where necessary, take immediate and appropriate action in respect of their own business practices and/or materials. 

Published 1 March 2012