14 October 2011 Last updated at 06:01 ET

Q&A: Plans to simplify energy tariffs

Big changes to energy tariffs are now in the offing

The energy regulator Ofgem has proposed some big changes to the way gas and electricity companies sell to customers.

Specifically, it wants all suppliers to have standard no-frills tariffs, which will be easily comparable on price alone with the equivalent tariffs offered by other suppliers.

It is all part of Ofgem's wider plan - announced in March 2011 - to inject some real competition into the domestic energy market, which it says is run on the basis of "complex tariffs, poor supplier behaviour and a lack of transparency".

What is the problem?

The problem is that although most people buy their gas and electricity from just six big suppliers, if they try to shop around they will stumble upon a jungle of more than 400 different tariffs, from the big six and the many minnows in the business.

The structure of the charges, and the eventual price you will pay, can vary depending on how you pay (by direct debit, pre-payment meter, or credit transfer such as cheque).

The charges will also vary depending on whether or not you are on an internet-only tariff, which part of the country you live in, if you have a two-tier tariff or one with a standing charge, if the deal involves a fixed price, when the deal was launched, how long it lasts, and so on.

Not surprisingly, this makes it very hard for anyone to make a choice about the thing that concerns them most - cost.

Who invented all this?

Critics accuse the energy firms of employing a deliberate tactic known as confusion marketing.

If everyone could tell instantly which was the cheapest supplier then many more people would switch and suppliers would be under intense pressure to cut their prices.

So to avoid too much competition, it is argued that the firms claim to be cheaper than each other while offering deals that make it very hard to decide if the claim is true or not.

The effect is that many people do not bother even trying to switch.

So, what is Ofgem's proposal, exactly?

Ofgem has a number of big changes for the industry up its sleeve.

But this one, which is now going out to consultation, involves the following.

• all suppliers should have simple "at a glance" tariffs with a standing charge fixed by Ofgem, and a single price for each unit of energy used set by the company.

• each firm will have one standard tariff for each of the three payment methods, and per fuel. So that would mean six standard tariffs per firm.

• the supplier will still be able to raise or lower its charges to the customers on these simple tariffs and will still have to give 30 days notice of any such change.

• suppliers will still be able to offer as many more sophisticated tariffs as they like - including dual-fuel tariffs - but these will have to be at fixed prices, with the exception of tracker-style tariffs, and for fixed terms.

• suppliers will no longer be able to automatically extend these "innovative" contracts (as Ofgem calls them) when they end, and customers who do nothing will automatically default to the plain standard tariff.

Ofgem says all this amounts to a "major reform" with increasing transparency ending the confusion and helping all customers.

What about bills, shouldn't they be simpler too?

Ofgem agrees and as part of its plans is proposing that bills should display charges in the form of pounds or pence per month, as well as per kilowatt hour.

Ofgem says this will be like displaying the APR (annualised percentage rate) for loans such as mortgages and credit cards.

Further changes to bills will be proposed by Ofgem in November.

So when does this all start?

If the consultation goes OK, and the industry does not throw up substantial objections, then all these changes could start in about a year's time, in the winter of 2012.

But Ofgem warns this does depend on the industry getting "fully behind our reforms".