Ofgem to make energy tariffs clearer

Published on Friday, 14 October 2011 09:18
Posted by Scott Buckler

Simple tariffs, clearer bills and annual statements will be the result of the radical reform model proposed by energy regulator Ofgem

After extensive analysis, Ofgem has decided to progress its preferred model for the reform of the retail energy market. It has also published today its latest report on prices which shows that the average dual fuel bill now stands at £1,345 and, following recent price rises, estimated suppliers’ margins have peaked at around £125 per year, but are likely to fall back next year. This report on prices does nothing to alter Ofgem’s findings in March that competition is being stifled by a combination of tariff complexity, poor supplier behaviour and lack of transparency and that radical change is needed.

Today’s consultation is the first of four waves of reform:

  • In November detailed proposals to reform the energy market to help the businesses sector
  • In December further decisions on proposals on liquidity to break the stranglehold of the Big Six in the wholesale electricity market
  • In the New Year the findings of an independent report into making energy company accounts more transparent.

Ofgem’s Chief Executive Alistair Buchanan said: “When consumers face energy bills at around £1,345 they must have complete confidence that this price is set by companies competing in a fully competitive market. At the moment that is not the case.
“That is why a radical break with the past is needed. Ofgem’s tariff reforms offer the quickest way to create a market where consumers can have confidence that prices are set by effective competition. Suppliers have told Ofgem they want to restore confidence in the industry and now they have the chance to do so.
“With £200 billion of investment needed to overhaul Britain’s energy industry and the pressure this and rising energy prices puts on bills, consumers rightly demand a major improvement in the way suppliers behave towards them.”

Ofgem’s Tariff proposals

Ofgem is proposing to give consumers a much clearer choice than the 400 tariffs currently available. Each supplier will be required to offer just one standard tariff for each payment type. With the standing charge set by Ofgem suppliers will only be able to change the unit price, which means that consumers will be able to compare prices at a glance. For these standard tariffs all other complications like different tier prices and complex discount structures will be removed. So the lower the price the smaller the bill, with no exceptions.

Ofgem also wants to allow consumers the choice of more innovative tariffs and to encourage new firms to enter the competitive market to increase pressure on the Big Six. It is also important to build in the flexibility to support the Government’s drive to promote smarter energy use, for example through smart meters. Therefore suppliers will still be free to market a range of more innovative deals, provided they are for a fixed time. We will require suppliers to express prices using standardised price information for these innovative deals so they can be easily compared with standard tariffs. However, consumers on these more innovative tariffs, will be protected from any price rises for the duration of the contract.

Clearer information for consumers

Ofgem is developing an Energy Label for every tariff which will give consumers all the vital information they need to make an accurate comparison. Ofgem is also proposing more prescriptive regulation of bills, annual statements and notifications about price increases. This will see the development of compulsory standard templates that suppliers have to adhere to. These will be developed through extensive testing with consumers. Better bills and annual statements will again allow consumers to better engage in the market.

More consumer powers and further protection for vulnerable consumers

Ofgem is also seeking new powers from Government to provide consumer redress so that it can award compensation if suppliers break the rules and the Department of Energy and Climate Change has confirmed that it is looking at this issue. Ofgem has also Tracker deals that comply with consumer protection law are exempted from this condition. Economy Seven tariffs will still be available as a standard tariff. We have asked the Government for responsibility for running the Confidence Code for price comparison sites, which ensures that consumers get reliable online advice on changing supplier and the power to report on company performance.Ofgem is continuing along with Government to look at whether there is a need for further protection for vulnerable consumers.

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