Ofgem has published its proposals for a simpler and more competitive energy market which includes a plan to simplify energy tariffs from October.
Energy consumers are disillusioned with both the energy market and energy suppliers and consequently Ofgem has announced reforms to simplify the energy market.
Included in Ofgem’s proposals is a no frills tariff. This is made up of a single standing charge, set by Ofgem and one simple unit price. However, other more innovative tariffs will be able to run alongside this tariff.
Ofgem says research shows that consumers find it easier to compare tariffs if there is just one simple tariff like the one being proposed. Ofgem tested several different options for presenting tariffs and found that over 80% of consumers tested could identify the cheapest deal in less than 30 seconds when Ofgem set the standing charge and there was only a single unit price to compare. This compares with 44% of those tested being able to choose the cheapest tariff using a simplified version of the current system.
The research showed that over 70% of consumers tested said they would be more likely to switch if tariffs were simpler. This is significant when the majority of consumers at the moment don’t bother to compare and switch suppliers. However, Utility Exchange reported last month that Ofgem was set to make it easier for small businesses to compare business gas prices and electricity rates and switch suppliers.
Consumers are disillusioned with the system as it is at the moment and it’s for this reason that Ofgem thinks only a completely different system will improve confidence in energy suppliers. Utility Exchange reported that E.ON had announced a set of principles for business energy sales and is working on changes for domestic consumers. British Gas has also introduced a simpler system of tariffs and it seems all energy suppliers are beginning to recognise that drastic change is needed. Utility Exchange also reported that British Gas Business has announced plans to help small businesses by capping charges owed to just one year.
The chief executive of Ofgem, 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”.
Ofgem said at a time when global energy prices meant high domestic and business gas prices and electricity tariffs that it was important to improve consumer confidence in the energy market. The energy watchdog also said energy bills were affected by the pressure to invest in secure energy supplies and cut carbon emissions.
Ofgem isn’t just proposing simpler energy tariffs. It also wants clearer more understandable bills and “enforceable standards of conduct”.
The Director of Policy and External Affairs at Consumer Focus, Adam Scorer, said “For too long, wilful confusion and sleight of hand from energy companies has masqueraded as innovation and consumer choice. Hundreds of complicated tariffs for an essentially simple product have brought energy companies into disrepute and shattered the confidence of consumers in the market. The idea of a simple tariff with a common standard charge and easily comparable unit prices is a necessary step given the state of confusion in the market. However, we will keep a watchful eye on what is allowed to be put into the standard charge”.