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Ofgem's plans to simplify energy tariffs: Q&A

By This is Lincolnshire  |  Posted: October 19, 2012

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Under Ofgem's plans, energy suppliers will have to make bills easier to understand

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Energy suppliers will be forced to tell customers about the cheapest gas and electricity tariffs they offer and make their bills easier to understand, under plans being floated by energy regulator Ofgem.

Following days of confusion surrounding Prime Minister David Cameron’s energy policy, Ofgem has announced it is consulting on plans for a package of “simpler, clearer, fairer measures to improve radically the competitiveness of the household energy market”.

What changes will be brought in and how will they affect you? Find out with our Q&A.

What’s it all about?

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As it stands, many customers find it extremely difficult to decipher their bill and work out if they are on the cheapest tariff available.

The huge number of tariffs on offer from different providers – which vary depending on where you live, your method of payment and so on – make shopping around confusing, so many customers don’t bother to switch.

Research from consumer group Which? indicates only one in 10 people are able to find the cheapest deal.

Ofgem has today announced plans to tackle this issue, vowing to implement measures that will simplify tariffs.

The need for simplification has become more evident after price rises were announced by energy suppliers one week ago.

What does Ofgem intend to do?

The regulator’s proposals for consultation include:

- Limiting the number of tariffs suppliers can offer to four “core” tariffs: That will actually mean four tariffs per fuel type (electricity and gas), which would apply to each payment type. If suppliers participate in collective switching they will be able to offer another tariff, Ofgem says.

- ‘Dead’, ‘standard’ or ‘variable’ tariffs no longer available will be banned: Suppliers will only be to keep consumers on dead tariffs if they offer them value for money. Otherwise they will be transferred to their supplier’s cheapest variable deal.

- Personalised information: Suppliers will be required to give all their customers personalised information on the cheapest tariff they offer for them.

- Simplified information: Information suppliers send to consumers to be simplified, more engaging and use standard, easy-to-understand wording.

- A pilot scheme regarding vulnerable customers: Vulnerable customers and others who haven’t switched for some time would be offered, by suppliers, a personalised estimate on the cheapest tariff from across the energy market.

- A new Tariff Comparison Rate (TCR): A TCR would be used in all suppliers’ communications to help customers compare tariffs. Ofgem is also proposing personalised estimates with customers’ usage to help them compare tariffs more accurately when switching.

- Banning price increases or other changes to fixed term tariffs: Except trackers or structured price increases set out in advance which are fully in line with consumer protection law.

- Banning suppliers from rolling customers onto further fixed term contracts without their consent

- Providing a no-exit fee and 42-day switching window before the end date to their fixed term tariff before switching to a new tariff.

- New monitoring procedures: i.e. Tracking the impact on consumers, including vulnerable consumers; monitoring the market to gauge the impact of the reforms and publishing suppliers’ performance, including complaint handling and satisfaction results.

So how will I benefit?

There are a number of advantages:

More information: You’ll be given regular information on your energy use and your forecast annual bill, so you’re armed with the information you need to compare quotes with your current deal.

The new tariff information label will provide an easy way to compare the terms and conditions of tariffs in the market on a “like for like” basis, and the jargon on your bill will be replaced with easy-to-understand wording.

And when your price changes you’ll receive clear information, telling you in pounds and pence what the new cost is likely to be.

Extra protection if you choose a fixed-term contract: For example, new rules will be introduced to ensure you receive the information you need before your current contract ends, so you can start shopping around.

Better conduct: Suppliers will be required to meet Standards of Conduct: to treat you fairly and ensure they are meeting consumers’ needs. This will cover all their dealings with you, including the information they send you as well as when you speak to them with a query or complaint.

When will these changes come into force?

Ofgem aims to start introducing its reforms by summer 2013. The regulator is legally required to go through an extensive consultation process beforehand.

Meanwhile the government is publishing its Energy Bill, which may add more measures.

Have the plans been well received?

The executive director of consumer group Which?, Richard Lloyd, broadly welcomed the proposals.

"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," he said.

"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."

But some criticism has been directed at the plans Caroline Flint, shadow energy and climate change secretary, said Ofgem's proposals were “only tinkering at the margins”.

Ms Flint said: “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."

Meanwhile News agency Reuters noted a potential hole in the plans, reporting: “Britain's energy regulator Ofgem stopped short of forcing energy suppliers to give their cheapest tariff, a political hot potato, in measures to simplify domestic gas and electricity bills on Friday.”

What stance does the Government take on this issue?

During Prime Minister's Questions on Wednesday, David Cameron promised to legislate "so that energy companies have to give the lowest tariff to their customers".

Ministers at the Department for Energy and Climate Change were understood to be surprised by the announcement, while the big energy firms said they were totally unaware of the plan or of the government's intention to put it into legislation.

A Downing Street source told the Guardian it had been going on for weeks, and it was not something the prime minister said on the spur of the moment.

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  • lastone  |  October 19 2012, 8:20PM

    There's no need for energy companies to even have the proposed 4 tariffs, let alone the current level that must average well into double figures. Why do they need more than one tariff? The only reason I can think is so they can catch out customers who are not paying attention. Energy companies have introduce a "risk element" for the customer buying their electricity and gas.This practice is more traditionally associated with stock market investment and casinos. I once looked into the possible benefits of changing energy suppliers with the help of those comparison web-sites. The process highlighted a substantial variation between what customers are charged and realised I'd been grossly discriminated against because of my energy supplier's tariff structure, duel fuel incentives and preferred payment method. Based on my annual energy consumption I was paying 90% more for my electricity than those paying by direct debit on the cheapest tariff. This price differential for effectively delivering the same product is criminal. The disparity between what people are charged is completely outrageous and unacceptable that one person's preferred method of payment over another can contribute massively to this difference. The process of choosing your energy supplier is clearly like selecting an investment product, requiring guidance from a financial advisor to steer you away from making costly decisions. The fixed rate fixed term energy tariffs mirror the approach of banks who entice customers with offers of mortgages or savings accounts with apparently favourable rates. Like mortgages, they are then tied in to these deals by their terms and conditions which subsequently become uncompetitive due to market trends. Or, like savings accounts, the initial benefits are wiped out because, with the customer being unaware, the deal has been superseded with the latest issue. With the array of deals available to the customer and their wide ranging and complex price variations, the question is raised about how prices are applied which arise from fluctuations in supply costs. For example how do the energy companies apply the recent cost increases to such a varied and complex pay structure? It appears completely illogical that as the supply costs go up there are some deals costing less. Therefore it follows that one group of customer must be subsidising another. It seems for the suppliers to offer and manage all these tariffs it has significant cost implications and will mean everyone is paying extra for their energy because of this.

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