Sort energy prices or else, says Ofgem

21 March 2011

Gas and electricity watchdog Ofgem has given the "big six" companies a deadline to sort out unfair and confusing price tariffs.

Ofgem's Retail Market Review calls for energy providers to make their complex pricing structures simpler and more consumer-friendly.

Three quarters of consumers stick with the same standard tariff and either choose to stay with their provider out of necessity or an unwillingness to try and find a better deal elsewhere. The regulator says it is increasingly concerned about the growing number of 'sticky' customers.

Only 5-10% of customers are believed to be 'pro-active', switching providers or tariffs, according to Ofgem analysis. A further 5-10% will change but only in response to speaking with a sales agent.

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A study from the Office of Fair Trading shows complex pricing is more prevalent in energy retail than any other sector, with 61% of customers claiming it is difficult to choose a supplier.

This is mostly because the market is deemed too confusing and complicated. It is difficult to calculate how much the contract will cost and hard to compare suppliers' terminology, which sounds different but describes the same things.

Ofgem wants to see a limit of one standard tariff per payment method (prepay, direct debit and named bills) rather than the current unnecessary number - which has increased by 70% since 2008.

"Consumers have told us that energy suppliers' prices are too complicated. It is no surprise that they are bamboozled when tariff complexity has increased from 180 to more than 300 since 2008. That is why we are planning to sweep away this complexity so suppliers' prices
are fully exposed to allow easy price comparisons," says Ofgem's chief executive Alistair Buchanan.

The regulator is also calling for a standardised measure of pricing, so that consumers can compare costs between providers more easily.

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Its proposals have been welcomed by consumer campaigners; Ann Robinson, director of consumer policy at uSwitch calls the overhaul "long overdue." She adds: "What Ofgem has acknowledged today is that the market isn't working properly for consumers."

Gas and electricity suppliers now have eight weeks to co-operate with Ofgem and show they are engaged with these changes. Failure to do so will result in providers facing a Competition Commission referral, Ofgem warns.

In response, Energy UK, the contact point for all energy providers, says energy companies will work closely with Ofgem to ensure the market is working effectively for consumers. Though it argues that Britain has one of the most competitive energy markets in the world.

Christine McGourty, director of Energy UK, says: "Energy companies will continue to do everything possible to serve their customers well, and keep prices as low as possible. Companies will now be looking at Ofgem's proposed reforms in detail and respond to the consultation fully in due course."

She adds: "In response to customer demand, there is now a wide range of energy products available - such as green tariffs and fixed tariffs - to meet the diverse needs of different customers. If energy companies are not setting out these options clearly enough then this is something that should be addressed."


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