Simple energy tariffs find favour with customers

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Media captionIan Malee, from Ofgem says consumers want "a simpler energy market"

The energy regulator Ofgem says its plans for "no-frills" tariffs should lead to many more consumers changing energy suppliers.

It tested simpler tariffs on 2,000 people and found more could spot the cheapest available tariff than before.

More than 70% of those tested said they would be more likely to switch suppliers if the tariffs were simpler.

Ofgem cited the research in support of its recently announced tariff simplification plan.

"[We] found that 85% of consumers tested were able to identify the cheapest deal in less than half a minute when the standing charge is set by Ofgem, leaving just a single unit rate to compare," the regulator said.

"This compares to only 44% of consumers tested being able to select the cheapest tariff under a simplified version of the current arrangements," it added.

How it will work

In October, Ofgem proposed that all domestic energy suppliers should offer standard, simple tariffs to their customers so that they would find to easier to compare them and then switch to the cheapest supplier on offer.

The plan is part of the regulator's widespread attack on the business practices of energy firms which it thinks are restricting competition and keeping prices artificially high.

Ofgem believes that the plethora of confusing tariffs on offer simply bamboozles many customers.

This leads to them staying put on expensive deals when they would benefit from a switch, if only they could tell which was the cheapest alternative.

Instead of the current situation, in which there are more than 400 tariffs on offer from the big-six suppliers and their various small rivals, Ofgem is proposing that:

  • all suppliers should offer one, basic, "no-frills" tariff
  • the tariff should have a standing charge set by Ofgem
  • the tariff should then have a single unit price, set by the supplier
  • each firm will have one standard tariff for each of the three payment methods, and per fuel, so there would be six standard tariffs per firm
  • suppliers will still be able to offer as many sophisticated tariffs as they like - including dual-fuel tariffs. Those would be at fixed prices, with the exception of tracker-style tariffs, and also for fixed terms.

The consumers' association Which? said Ofgem should go further.

"With widespread anger about price hikes and bad customer service, a much bigger shake-up is needed to guarantee that fair and affordable energy is available to all," Which? said.

"Without more radical changes than those Ofgem is proposing, people will still struggle to compare different deals at a glance and easily see which is cheapest," it added.

'Growing consensus'

The current consultation on Ofgem's plans is still going on.

Its final plans will be published in the New Year with a view to the changes coming in during the winter of 2012.

Ofgem's chief executive Alistair Buchanan said: "Encouragingly, we are seeing that major energy companies like British Gas, E.On and SSE are recognising the problems that Ofgem has identified and there is a growing sense of consensus forming behind the need for a simpler, more competitive energy market."

"Ofgem is now calling on all suppliers to back its reform programme, which gives energy suppliers a chance to draw a line under the past and an opportunity to restore consumer trust," he added.

The biggest domestic supplier, British Gas, agreed in November to fall in line with Ofgem's plans, admitting that customers had lost confidence in the honesty of energy suppliers.

Some of the other big energy firms have also agreed to revise their tariffs, and also the language and layout of their bills.

Ofgem said that it now wanted to see greater standardisation of bills, annual statements and price rise letters, to stop customers being confused by communications from their energy firms.

"An expert review of the language suppliers use to communicate with consumers also found that some of the language used to explain contract terms show almost the same complexity as the Harvard Law Review," Ofgem said.

The official consumer watchdog Consumer Focus, backed Ofgem's call for all suppliers to fall in line with the regulator's plan.

"For too long, wilful confusion and sleight of hand from energy companies has masqueraded as innovation and consumer choice," said Adam Scorer of Consumer Focus.

"Hundreds of complicated tariffs for an essentially simple product have brought energy companies into disrepute and shattered the confidence of consumers in the market."

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