The energy markets regulator Ofgem today announced it was scrapping the long-standing 28 day rule, by which customers are free to leave their energy suppliers and switch to another supplier without delay or penalty. The rule had been in place originally to prevent large suppliers from locking in their customer base on long-term contracts and thus preventing effective competition.

Ofgem's reasoning in scrapping the rule is to create incentives for suppliers to invest in longer term energy saving measures, such as replacing old meters with 'smart' meters that can inform energy consumers about their energy consumption in real time.

Ofgem's move somewhat obscures the fact that suppliers have long been able to incentivise their customers to remain with them, by, for example applying discounts on energy consumption retro-actively after a year of uninterrupted supply. Some suppliers, notably British Gas, have in the past applied penalties on customers wishing to switch away from certain tariffs before the expiry of a specified term.

Moves by suppliers to impose blanket sanctions for customers wishing to switch away will with certainty be met by widespread consumer dissatisfaction, and it is noteworthy to point out that past efforts by suppliers to impose penalties on switchers have so far consistently failed.

On the other hand, the scrapping of the 28 day rule offers a great opportunity for suppliers to develop innovative new tariff plans that incentivise customers to enter into fixed term contracts, in exchange for fixed prices, thus emulating the commercial market, which is based on renewable fixed price contracts.