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
    +1

    Comment number 505.

    486. JasonEssex
    20 MINUTES AGO

    Very true, but as your graph goes back to 2007, what was it in Jan 2007, approximately 40? So a 50% increase over 7 years.

    I more sceptical of the Water industry than the Electricity industry. All owned by hedge funds and banks. Not one peep from anyone. We all trust JP Morgan right!

  • rate this
    +2

    Comment number 504.

    Yes they made it very simple the took me off the spreading warmth tariff
    and put me on a standard tariff, they blamed the government for making the system simple, power company's pooing on the disabled yet again

  • rate this
    0

    Comment number 503.

    @497 You can, cover it in solar panels and flog the excess back to the power company. Grow your own tress and use a wood burning stove no need for Gas or power company electric.

  • rate this
    +5

    Comment number 502.

    I wonder if we could get a line added to all bills:

    1.5 EARTHS REQUIRED TO SUSTAIN CURRENT NUMBERS.

    Top of the page I think would be better.

  • rate this
    +6

    Comment number 501.

    There is a third option between the two extremes of the private sector we have now and renationalisation. The state should enter the market.

    With no shareholders to appease, all profits could be used to improve service and keep bills down. It would also either show the state was incapable or make the private firms behave.

  • rate this
    +2

    Comment number 500.

    It is scandalous that despite all of the talk around energy prices, we are not using as a base measure of comparison the unit cost per kWh. The comparison process is deliberately opaque, in order to confuse the consumer.

    Suppliers should be able to vary costs on the basis of standing charge, term, consumption, single/dual fuel etc, but in an easily understandable way.

  • rate this
    +2

    Comment number 499.

    A well intentioned Conservative Party idea to introduce privatization and more market competition into the distribution and supply of energy.
    Of course now that these companies are generally foreign owned, some of them partially state owned) most of the money goes out of UK. and into EU coffers.

    Same goes for the railways.

    Pity that it is the customer that suffers and there is no REINVESTMENT.

  • rate this
    +1

    Comment number 498.

    493.Tim Browning

    What 1,0000's of jobs is that the, the ones you just made up? You do realize that the North Sea has a dwindling supply and no major discoveries in the last 20 years and therefore why would any investor invest in zilch. Fracking is the new 'North Sea' and they are queueing up round the block to invest.

  • rate this
    0

    Comment number 497.

    apparently its a free market so why can't i build a power station in my garden?

  • rate this
    -2

    Comment number 496.

    485.U15588650
    Sorry but fossn (467) is correct. The EU 3rd Energy Package stops privitisation.
    Ultimately the French will also be forced by the EU to liberalise their markets and allow competition.

  • rate this
    +1

    Comment number 495.

    489.RuralJohn
    "Differences are due to increased levy to fund energy saving measures and increases in network transportation costs" Except the energy companies have been claiming for the last 3 years the prime source of the price rises were due increased wholesale costs, which is clearly untrue. And the price rises aren't a fixed amount, which covers the additional government costs

  • rate this
    +2

    Comment number 494.

    Nationalisation on it's own won't help.

    Far better to invest in cheap energy production and have a state-owned competitor in the market. The market will either innovate or will go bust.

  • rate this
    -2

    Comment number 493.

    485. U15588650
    4 MINUTES AGO

    I know what you would prefer, the Miliband solution. Brown's repackaged damaging policies.

    1997 tax raid on the Oil majors, for the benefit of the UK tax payer. Except that £5 bln raid, reduced North Sea investment to practically zero. Cost 1,000's of jobs are we're paying Blns each year as a result.

    No thanks

  • rate this
    0

    Comment number 492.

    http://www.bbc.co.uk/news/uk-25568823?postId=118310135#comment_118310135

    Answer: Much of the cost of the energy not for the commodity itself but are fixed costs which are chargable to the supplier irrespective of the amount of energy you use.

    These charges are often known as 'capacity charges' as they provide you with the 'capacity' to use as much energy as you want, whenever you need it.

  • rate this
    0

    Comment number 491.

    What about all the customers who signed up to fixed rates who can't switch companies because if they switch before the end of deal will incur penalties? typical penalties are a fee of £50 per fuel to move!!!!!

  • rate this
    +4

    Comment number 490.

    478. thelevellers
    The fact is the tories were never going to improve things for us, they do not want to upset their friends in the city who own these utilities.

    Explain to me why Labour, who managed energy from deregulation in 1998 to 2010, (Ed Miliband was energy minister from 2008) did not "look too close at their operation"? They must have "mates" too eh? Open your eyes past red or blue.

  • rate this
    -1

    Comment number 489.

    486. JasonEssex

    Differences are due to increased levy to fund energy saving measures and increases in network transportation costs

  • rate this
    +2

    Comment number 488.

    Whilst the government can take billions in taxation in your energy bills they are not really going to do anything to actually reduce the costs to the users, all the huffing and puffing they do is just hot air.

  • rate this
    -4

    Comment number 487.

    What an excellent idea. Trying to compare one suppliers apples with another's oranges is very confusing. Clear and simple charging across the industry is what is needed.

  • rate this
    +1

    Comment number 486.

    479. Tim Browning
    Correct, since Jan 2009 till now its broadly the same (60). So the wholesale price has barely moved. Meanwhile retails electricity prices have gone up by 40%, so where has the additional cost come from? Its certainly not all distribution/staffing costs

 

Page 9 of 34

 

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