UK: Ofgem unveils energy tariff reforms

ENERGY suppliers will be forced to tell customers about the cheapest tariff they have on offer under proposed reforms for the industry unveiled by the energy watchdog today.

Ofgem said its plans will put an end to consumers being confused by complex tariffs and will usher in a “simpler, clearer, fairer and more competitive” energy market.

The plans come after Prime Minister David Cameron was accused of backtracking on a commitment to require energy firms to give households the cheapest deals, rather than simply inform consumers what is available, as unveiled by the regulator today.

Ofgem is extending proposals unveiled last year to simplify tariff structures and limit core tariff numbers across the whole market.

The regulator proposed that suppliers should offer four core tariffs to cut the “baffling” array of tariffs currently on the market.

This will actually mean four tariffs per fuel type - electricity and gas - to apply to each payment type. “Dead” tariffs no longer available will be banned to reduce the overall number of tariffs and reduce the risk of people paying too much, Ofgem said.

The watchdog wants to introduce new tools to help consumers switch energy account. As well as giving customers information on the cheapest tariff they can offer them, Ofgem has proposed a scheme where suppliers offer vulnerable customers and others who have not switched for some time an estimate on the cheapest tariff across the whole energy market.

Most Read

In a bid to make the market “fairer”, Ofgem plans to ban price increases or other changes to fixed-term tariffs.

The package of proposals will be published before the end of October alongside its non-domestic proposals.

Ofgem is legally required to go through an extensive consultation process but wants to start to introduce its reforms by summer 2013.

Ofgem chief executive Alistair Buchanan said: “Our plans will put an end to consumers being confused by complex tariffs and will usher in a simpler, clearer, fairer and more competitive energy market for all consumers.

“We have spoken to thousands of consumers who have helped us shape this package through a period of extensive consumer research, and are very grateful for their input.

“I am glad to say suppliers have already responded with some initiatives, but these don’t go far enough.

“Ofgem is determined to press forward with proposals to deliver for consumers the most far-reaching shake-up of the retail energy market since competition was introduced.”

The Prime Minister plunged energy policy into confusion with his surprise announcement that the Government would legislate so that gas and electricity companies “have to give the lowest tariff to their customers”.

Energy Secretary Ed Davey distanced himself from the proposal and No 10 said energy firms would be obliged only to “offer” the cheapest tariffs.

Mr Cameron, attempting to clarify his statement, stopped short of repeating his previous suggestion that companies would be compelled in any way to put customers on the cheapest tariffs.

Arriving in Brussels for an EU summit, he said he wanted to be on the side of hard-pressed people “who struggle to pay energy bills”.

Neither energy firms nor the Department of Energy and Climate Change (DECC) are thought to have had any forewarning of Mr Cameron’s announcement during Prime Minister’s Questions on Wednesday.

Richard Lloyd, executive director of consumer group Which?, said: “Along with the Prime Minister’s promise to ensure suppliers put their customers on their lowest tariffs, this is another big step towards helping people get the best price for their energy.

“Our own research shows the market is far too complicated, with only one in 10 people able to find the cheapest deal.

“These proposals will boost customer power, making it much easier to shop around, and should increase the pressure on the energy companies to keep their prices in check.”

Asked why Ofgem was not proposing a requirement for companies to move customers onto the lowest tariff, as Mr Cameron suggested earlier this week, the regulator’s director of communications Ian Marlee told BBC Radio 4’s Today programme: “We will need to look at the detail when the Government comes out with its proposals, but we still think that competition is still the best way to protect consumers in the market.

“We think it is right that companies still will innovate in terms of trying out different products with their consumers - for example, maybe a three-year fixed deal as opposed to a two-year fixed deal - and consumers may well benefit from that.

“We looked at the whole range of options, but the clear point here is that what we want to do is get an appropriate balance between allowing innovation in the market but making sure there isn’t a complicated array of tariffs out there. That’s what we think our proposals do.”

Angela Knight, the chief executive of Energy UK, which represents suppliers, told Today: “What they have here is a pretty challenging set of requirements on the companies and we will work with Ofgem and others, once we have got the detail, to get what is in the best interests of our customers.”

Ms Knight added: “As far as the Prime Minister’s proposals are concerned, we haven’t seen them.

“As far as Ofgem are concerned, what they are saying to us is (you should have) a very small handful of tariffs, you have got to be very clear on them and tell your customers about them and give the customer the choice.

“We need to have a set of proposals that are in the best interests of our customers and I think the customers do want choice. I do believe that choice is the right thing. I don’t think we should say to the customer ‘You must have this or that’.”

Caroline Flint, shadow energy and climate change secretary, said Ofgem’s proposals were “only tinkering at the margins”.

She added: “It is deeply disappointing that after spending nearly two years putting these proposals together Ofgem has once again ducked the opportunity to get tough with the energy giants.

“We need to open up the books of the energy companies, but these reforms do nothing to improve the transparency of the prices these firms charge their customers.”

Energy and Climate Change Secretary Ed Davey welcomed Ofgem’s proposals.

He said: “These are the sort of measures I have been urging for some time, they represent a big step forwards in reforming our energy market to help millions of households get a better deal on their energy bills.

“I look forward to seeing the full proposals from Ofgem in due course.

“I want an energy market where the suppliers have to work hard to win your business, and then work hard to keep it. Making bills simpler and easier, for instance by actually putting the best tariff on the bill, is a really important part of that.”