Check out our 3 latest CEER papers: one is a scoping paper on flexibility; the second is in response to the European Commission’s LNG and storage strategy, and the third is on early termination fees (see the feature article below).
Delegates of the EU-US Regulators Roundtable, April
Feature: Switching should be free but early termination fees may be justified
CEER has published a position paper on early termination fees. Regulators are strong advocates of competitive markets which benefit consumers. CEER works hard to remove barriers (which was the feature of the April newsletter) and to make it easy (and at zero cost) for energy consumers to change suppliers.
Switching supplier should be free In our newly released paper on early termination fees, we restate our view that energy suppliers should not charge a termination fee to customers who switch energy supplier. This is because charging a switching fee to customers would deter competition in the market and limits consumer choice.
What about early termination fees for ending a contract early? However, early termination fees are different. These are supplier fees charged to customers who unilaterally end their energy contract earlier than the agreed termination date.
Where a customer on a fixed term / fixed price contract terminates the contract before its end date, early termination fees may be justified to enable the supplier recoup its hedging cost, which is not recovered from the customer during the agreed term of the contract. If early termination fees were not allowed in these circumstances, the supplier may be forced to pass on the risk of such costs being incurred to all customers. The end result could be higher electricity prices and less consumer choice.
CEER recommends: • Allowing early termination fees for fixed term, fixed price contracts, provided the customer is fully and clearly informed about the existence of the fee before entering into the contract and that the rest of the contract terms are balanced and do not “lock-in” the customer.
• Not allowing early termination fees for energy contracts with variable pricing where the customer carries the risk of the price variation.
• Not allowing early termination fees for energy contracts that result from automatic renewal of fixed term energy contracts.
• Clarity is key. Contractual terms must be clear to customers before entering into a contract with an energy supplier.