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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  • rate this
    +4

    Comment number 305.

    Each bill should be limited to one side of A4 paper. It should be clear as to whether the bill is for gas or electric (unlike at present). The tariff per unit should be explicit and itemised. Currently this isn't the case. Customers should be able to calculate the cost of their usage based on the details given.

  • rate this
    +4

    Comment number 304.

    I feel so much better now...

    It won't help the rising cost of energy, the double digit annual increases or the appalling customer service, but at least the bills will be easy to read?

    And 4 tariffs like these maybe?

    1: Expensive
    2: Expensive Plus - With free oil spill
    3: Expensive Pro - With Poverty Plus
    4: Expensive Extra - With a cuddly mascot toy!

    Excellent?

  • rate this
    +2

    Comment number 303.

    Everytime I write what I think on here the bbc removes the comment.
    Lets just say that Rip Off Britain does not begin to describe the uk !

  • rate this
    +1

    Comment number 302.

    284.EUCiti2en
    "Ofegm permits £12 a year for national grid upgrade and maintenance"
    "Government agrees strike price for new nuclear"

  • rate this
    +3

    Comment number 301.

    269. SillyEnglandDotCom
    "We need one energy company with one tariff.....that's all....the ultimate simplification. Thatcher's privatisation/competition project has failed, and continues to fail all of us."!

    Thatcher left as PM in 1990, privatisation of energy in 1998. Labour in for power from 1997 - 2010 during privatisation. Time to move on and grow up rather than living almost 25 years ago!

  • rate this
    +5

    Comment number 300.

    288. ichabod
    Maybe we should reduce the BBC to only one TV channel...After all, the public doesn't need choice, right?
    ====
    I'll share a secret with you. 4 different tv companies provide 4 different sets of programmes. Even 40 different energy companies all supply you with exactly the same thing. You aren't getting any choice, understand? It's all a great big phony scam to steal your money.

  • rate this
    +3

    Comment number 299.

    For those saying privatisation was fantastic and the best solution I have an obvious question, why do foreign state owned generators buy up our power infrastructure? surely if it was so good then private investors would own it not foreign governments who hate us and still make a profit out of us.

  • rate this
    0

    Comment number 298.

    278 Trymachine
    "Do I recall 'budgeted proposals' for 'privatization' ..rhetorical question
    Budgeted proposal prior to privatization...Yes, I do recall...there weren't any that were not 'mistaken' and mostly 'fictional' at worst.
    I was there, 'you' were 'warned' and you chose the forty pieces.
    You're correct mistakes should be seen and 'new' ideas should meld with the best of the 'old ideas'

  • rate this
    +5

    Comment number 297.

    "Simplifying tariffs will increase consumer trust" -Another example of why ofgem are a waste of time and should be scrapped. A regulator that regulates consumer energy prices is needed. People realise that the price rises aren,t consistent with wholesale costs and simplifying tariffs won,t address that issue which result s in the mistrust of the big six.

  • rate this
    +3

    Comment number 296.

    Let's make them make it really simple.
    A fixed standing charge to cover connection (calculated by dividing Infrastructure running cost by the the number of connections)
    Each company only allowed to supply one form of energy - Gas or Electricity or Oil, (or wood for that matter) - at a single price

  • rate this
    +3

    Comment number 295.

    What folly it was to allow Thatcher and her poisonous cohorts to rob you of your control of the power and water you need to live. How could you be so stupid to imagine that these essential to life needs would not be used to exploit the sweat of your brow. Now you calm yourselves by swallowing this PR gunk issue to calm your ever growing hysteria, as you realize you are trapped into servitude.

  • rate this
    +3

    Comment number 294.

    @290

    But the general public to a large extent are stupid. Look at the people complaining they cannot understand the bill they receive. Any adult should be able to figure it out but we have people on here commenting it might as well be in latin.

  • rate this
    +2

    Comment number 293.

    The fact that so many people claim that they cannot understand their utility bills is an indication of the poor standard of education in maths. Anyone who can add, sugtract, multiply and divide should be able to do the sums. I will end up paying more because people can't be bothered to make an effort to do some arithmetic.

  • rate this
    +2

    Comment number 292.

    behindthe frogs@271

    Well, standing charges ensure that low users pay a disproportionate amount. They also suffer from the practice of companies charging a higher rate for the first so many units.

    Who are these low users likely to be? The poor.

  • rate this
    +2

    Comment number 291.

    Your new bill will simply read "Give us all your money"

  • rate this
    +3

    Comment number 290.

    How many more times we don't want it simplified, we want the charges fairer, PLEASE STOP TREATING US LIKE WE ARE STUPID !!!!

  • rate this
    0

    Comment number 289.

    Steps such as these will go along way to improving things, but only if consumers are willing to shop around and switch. A market needs intelligent consumers to work as well as competition for supply.

    One things for sure, these changes have more chance of working than Ed's clumsy price freeze threat.

  • rate this
    -3

    Comment number 288.

    Our energy prices have repeatedly been shown to be among the lowest in Europe. Do you really really believe it would stay that way if nationalised? Not a chance.
    Also loved Mischa Hussein on BBCR4 Today arguing against having a choice of four tariffs. Maybe we should reduce the BBC to only one TV channel...After all, the public doesn't need choice, right?

  • rate this
    +1

    Comment number 287.

    If the government wants to help make a decision on how exactly we are going to provide the masses with energy and invest for the long term.

  • rate this
    +4

    Comment number 286.

    CHANGES DELETED PPD. I can't get an answer out of Ofgen as to why, in what way this makes the market fairer, but with these changes went out Payment in Advance Discounts. If I want to pay monthly in advance of my bill, and NOT DD, why isn't that fair and why was that taken away?

 

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