Ofgem: Energy tariff reforms should 'simplify' market
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
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.
"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.