Ofgem: Energy tariff reforms should 'simplify' market

 

Mike O'Connor, Consumer Futures: "The companies will be banned from doing some rather complex, dodgy deals"

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Changes to energy tariffs designed to create a simpler and clearer market are coming into force.

Regulator Ofgem says its banning of confusing and complex tariffs will help to rebuild consumer trust.

Other changes include limiting suppliers to just four tariffs per customer for both electricity and gas, and simplifying how prices are charged.

Energy UK, which represents suppliers, said the changes would "help people get the best deal" on their energy.

Reforms to energy bills

Energy bills generic

From 1 January:

  • Suppliers limited to offering customers a choice of only eight tariffs: Four for gas, four for electricity.
  • Suppliers must inform customers through bills and other forms of communication on what they have done and what changes are planned in a "Treating Customers Fairly" statement.
  • Simpler structure for tariffs: A unit rate and, if suppliers choose, a standing charge.

From 31 March:

  • Suppliers must inform customers of the cheapest available tariff and how much money it could save them.
  • Introduction of a Tariff Comparison Rate (TCR), likened to APR for interest rates, enabling customers to compare tariffs at a glance. The TCR will be measured in pence per kilowatt hour (p/kWh) and based on consumption of an average user.
  • Bills and tariff quotes to include a "Personal Projection", forecasting what a customer will pay based on their own usage or supplier's best estimate.
  • Every tariff will contain a "Tariff Information Label" allowing customers easier understanding and a simpler opportunity to compare it.

Source: Energy UK

The moves are the result of a Retail Market Review which began in 2010. However, there are claims that energy bills remain complex for those trying to find the cheapest deal.

'Restore consumer confidence'

Further reforms will be introduced by April, including forcing suppliers to tell consumers which of their tariffs are the cheapest.

Ofgem chief executive Andrew Wright said the changes would ultimately drive down prices.

"Profits are not an entitlement, they should be earned by companies competing keenly to offer consumers the lowest prices and the best service.

"Now it is up to suppliers to build on our reforms to restore consumer confidence in the energy market."

He added: "There are good signs that they are taking up this challenge."

Ofgem will produce an annual report to consumers on the health of competition in the market.

It has said it "will not hesitate to take further action" if it sees "evidence of further barriers to competition".

Angela Knight, chief executive of Energy UK, which represents more than 80 energy providers and suppliers, said: "If you look at the market now, the deals are fewer in number and much easier to compare.

"Customers will see improvements to the information they get as a result of energy companies bringing in the changes set out in the Retail Market Review.

"This should help people get the best deal."

'Choice and simplicity'

Richard Lloyd, executive director of consumer group Which?, said that the reforms were "a welcome step in the right direction" but added that they did not solve every issue for consumers.

Energy UK's Angela Knight: "We can't be seen to be an industry that is somehow isolated and separate"

"They just do not go far enough to boost competition and help consumers find the cheapest deals," he added.

Meanwhile, Mike O'Connor, chief executive of watchdog Consumer Futures, said: "It would be naive to assume that this will sort out the energy market out once and for all."

But Ofgem's Ian Marlee told the BBC that the changes were designed with customers' views in mind.

"We are responding to what consumers have told us. They want a combination of choice and simplicity," he said.

However, facing accusations that the paperwork surrounding energy bills still remains complicated, he said that the changes made them simpler, rather than simple.

One consideration for customers trying to find the cheapest deal is that some firms will still levy a standing charge while others will not. This charge is designed to pay for the fixed costs of providing energy such as meter reading and maintenance.

The latest reforms follow the introduction in October of new rules for fixed-term tariffs for domestic customers.

Suppliers are no longer allowed to increase prices during the course of a fixed term and must not automatically roll customers on to another fixed-term offer when their current one ends.

Mr Marlee also said that the regulator was planning changes later in the year that would make the market for buying wholesale electricity more transparent. This would make it easier for small, independent suppliers to buy energy to sell on to domestic customers, which would increase competition.

The comments came after Labour's shadow energy secretary, Caroline Flint, claimed the major energy companies "deliberately inflated" the price they paid for electricity from their own power stations.

But Energy UK said that the research was wrong because the figures could not be compared.

 

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  • Comment number 225.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    +5

    Comment number 224.

    Apparently part of the rises is to pay for investment in new infrastructure.
    Well if they were any sort of responsible business, they would have been putting a % of the profits they've been making over the years into a a pot for future investment.
    It just seems every time they need to spend on infrastructure, prices go up supposedly to pay for it.
    Where's the foresight and future preparedness.?

  • rate this
    -3

    Comment number 223.

    @DC1990
    Your approach shows a blatant lack of understanding of the issues and environment and whilst it will result in lower energy bills, but you fail to account for the £150bn+ investment in new power plants, transmission systems etc. that the UK requires. If it is all nationalised, then that bill is footed through taxation - so WE ALL pay more (well, those of us who pay tax anyway). Thanks!

  • rate this
    +3

    Comment number 222.

    Just a quick comment on the 'price comparison' sites. I work for one of the big 6, and we know our prices are the highest, but on comparison sites we will always appear 2nd or 3rd in the list. We pay comparison sites massive commissions, and they happily misell for us. The tariff confusion means nobody questions this.

  • Comment number 221.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    +1

    Comment number 220.

    These changes now mean I can no longer get a competitive no standing charge tarriff, the significant prompt payment discount I benefitted from has disappeared as has the annual loyalty bonuses. The positive is since I changed to a fixed tarriff in September my December bill hasn't yet been e-mailed so the cash is in my bank account. I will now wait for the red bills.

  • rate this
    +1

    Comment number 219.

    I received a letter from E.On energy about this just before Christmas, informing me that unfortunately, the tariff I am currently on, coincidentally the cheapest they have, is too complicated, charging a set amount for the first few units, then a lower price for any after that.
    The cost of this 'simplification'? An estimated increase (by them) of 16% for this year. Thanks.

  • rate this
    +1

    Comment number 218.

    Dear punter, due to Maggie's fire sale in the 1980s & her torch carrying generosity of David Cameron we've decided to make your bills simpler.

    SO WE'VE PUT THEM UP BY 10%

    "HAPPY NEW YEAR"

  • rate this
    -2

    Comment number 217.

    194.The Watcher...
    ..Put the utilities back into the public domain again..things would get better for us...
    ---
    No they won't- Vladimir Putin & the Emir of Qatar are not going to give you cheap gas just because the utilities change ownership. They're going to continue selling it on the open mkt just like they do now. Even Ed Miliband knows this, although he isn't telling you.

  • rate this
    +1

    Comment number 216.

    185 Trymachine
    Ex nihilo nihil fit
    Don't be angry Dear...Forgive yourself...I forgive you.
    May 2014 bring you only the 'new' ideas you desire

  • rate this
    +3

    Comment number 215.

    209.Trymachine

    "There already are a number of tariffs without a standing charge ... populist and pejorative doesn't appear to recognise or understand this."

    Tell that to the 6 million with pre-pay meters who can not switch to cheaper tariffs and subsidize those who can. The poor have always propped up the spoilt middle classes.

  • rate this
    +3

    Comment number 214.

    Admittedly business is about making a profit, but formulating countless tariffs deliberately preys on the naivety &/or ignorance of the consumer to enhance that profit. This situation has increased alarmingly throughout over recent years with artificial discounting & even the simplest supermarket coupons not being worth the paper they're printed on. Rip-off Britain is an understatement!

  • rate this
    +3

    Comment number 213.

    There's a really easy way of simplifying energy bills. Take gas, electricity, water and the like back into public hands and either sell it on a not for profit basis. These things are a necessity and should be regarded as a public service, not as commodities to be bought and sold to make private companies ridiculous amounts of money at the expense of everyone else.

  • rate this
    +2

    Comment number 212.

    Yes, we MUST appeal to Cartels-R-Us to make things a little easier - a firm promise or a code of practice.

    Pathetic - but normal in bent britain. Sherry old boy?

  • rate this
    +1

    Comment number 211.

    @202. But as everyone else's tariffs have gone up, are Ovo still the best for you? If not, switch again.

    I cannot understand the bleating and whinging on this issue. Switching is easy and if you're dumb enough to stick with the same company year after year, whilst complaining about rising costs, well that's your problem. Energy tariffs AREN'T complicated either - they use fairly simple maths.

  • rate this
    +1

    Comment number 210.

    Brilliant Idea, EON have had to remove most of my discounts to comply with the new rules! Thank you Ofgem, now I've got to go and do all my research again starting from scratch. What's your next really clever idea?

  • rate this
    +1

    Comment number 209.

    189.angry_of_garston
    "Abolish the standing charge. It is a tax on the poor."

    There already are a number of tariffs without a standing charge ... populist and pejorative doesn't appear to recognise or understand this.

  • rate this
    -1

    Comment number 208.

    We are being ripped of left right and centre with the cost of living and it's time girl people to say ENOUGH

  • rate this
    -2

    Comment number 207.

    Great solution for the people that can't be bothered to calculate the best option or change supplier as the market changes. Yes some current tariff options are complicated but those on the domestic market are far from unfathomable. Question is, why are we seeking to reward laziness?

  • rate this
    +3

    Comment number 206.

    OK, good start...

    ... now separate production and retail so that energy companies can't also produce energy. Because at the moment they inflate the price they charge themselves for supplying energy.

    That's where the biggest scam occurs.

    Better still, renationalise production so that the treasury has control over the price and we get the profits.

 

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