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Retail Market Review - what does it mean for you?

Retail Market Review - what does it mean for you?

The result of Ofgem's years-long review of the consumer energy market culminated in a package of requirements for suppliers to help make the market clearer, fairer and simpler.

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This guide will help you understand those requirements, and how they have evolved since their roll out.

What is the RMR and how does it effect me?

The Retail Market Review, or RMR, was launched by energy regulator Ofgem back in 2010 and aims to create a 'Simpler, Clearer and Fairer' energy market for British consumers.

In Ofgem’s words: "We are making it easier for you to understand and choose the way you get your energy supply with simpler choices, clearer information and fairer treatment."

One of the cornerstones of the RMR is simplifying the energy market to allow consumers to switch tariffs and find the best and cheapest energy plan for them. In this context the energy watchdog created a number of tools including the Tariff Comparison Rate (TCR) and Personal Projection.

UPDATE: Please note, as of summer 2017, the tariff comparison rate requirement has been removed.

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What’s simpler?

The ‘Simpler’ element of the RMR seeks to simplify the energy plans on offer. As part of this process, energy suppliers are no longer allowed to offer complex, tiered tariffs. Now they have a single price structure for tariffs, meaning one unit rate for energy (or two unit rates for time of use tariffs such as Economy 7) and standing charge, which can be zero. As part of this simplification, every supplier will be limited to offering four energy tariffs.

Discounts and special offers, which may potentially add confusion to the market, have also been limited. Suppliers can now only offer two monetary discounts: one for using a single supplier for both gas and electricity, and another for managing your energy account online.

Criticism of these limitations have included that it has stifled innovation, and suppliers' ability to provide tariffs with perks and rewards suited to specific consumer groups.

UPDATE: It should be noted that the four-tariff rule has since been lifted, and many suppliers now offer more than four different tariffs.

What’s clearer?

The ‘Clearer’ section of the RMR focuses on making the information sent to you by your energy supplier easier to understand.

The main changes here relate to the information which appears on your energy bills and the notifications you will receive from your provider. Your energy supplier has to provide a personalised savings message on your bill, informing you what the cheapest energy tariff they can offer you is.

Your bill will also contain more information on your gas and electricity tariff in the form of a Tariff Information Label. The latter contains all the information you need to know about your energy plan including your gas and electricity consumption figures, any termination fees that might apply and a number of other useful bits of information. Having all of this in one place will make it ever quicker and easier to switch and save on your energy bills. Your supplier must also communicate any future price hikes to you in terms of pounds and pence.

Other changes include the addition of a Tariff Comparison Rate (TCR) (a requirement that was subsequently removed), and a Personal Projection, which will estimate your costs over the next 12 months. These changes were implemented in April 2014.

What’s fairer?

The ‘Fairer’ section of the RMR aims to rebuild consumer confidence in the energy market.

The main news for consumers is that your supplier will send you a letter 42 - 49 days before your energy plan comes to an end. From this point onwards, you can switch energy supplier and/ or tariff, safe in the knowledge that you can't be charged any early exit fees. So if your plan is coming to an end in the next six weeks, it’s well worth looking for a cheaper deal.

Consumers also no longer have to inform their supplier that they plan to switch in order to have their tariffs frozen ahead of a price hike. What this means is that if your supplier announces a price rise and you switch tariff, as long as you do this within a few weeks of the price rise taking effect, you won’t pay the increased energy rates before your switch goes through.

In addition, anyone signed up to a fixed price plan after the 14 July 2013 cannot have their unit rates changed and, if your fixed price plan comes to an end without your switching first, you will be rolled onto the supplier’s cheapest variable rate. It is worth noting that the latter is still likely to be substantially higher than what you were paying before.

Be an energy shopper

In April 2014, Ofgem launched its "Be an energy shopper" campaign, in a bid to get more people switching and to demonstrate how easy the process is. Particularly, following the implementation of the RMR.

The initiative aimed to publicise the fact that too many households overpay for their energy because they haven’t been "energy shopping". In fact, research conducted to promote the campaign, revealed that 62% of households have never switched energy supplier and 45% felt there weren’t significant savings to be made by switching.

These findings underline the need to educate more people about just how much they can save by "energy shopping" and just how easy the process is.

Post-CMA investigation amendments to RMR

When the Competition and Markets Authority (CMA), published its proposed remedies for the energy market following a two-year-long investigation, it found that some elements of the RMR were creating roadblocks to competition.

These elements included the 'simpler' area of the RMR, which requires suppliers to limit their tariff options to just four. It was the CMA's belief that this prevented the market from innovating to create better value deals for consumers.

In August 2016, Ofgem released a statement that it was working to implement the CMA's remedies, and plans to remove the four-tariffs-only rule by the end of the year (though many suppliers have already begun offering more than four energy plans).

However, Ofgem noted that this would have a knock-on effect to other areas of the RMR. The energy regulator stated that it would be mandatory to make at the same time "consequential changes" to the ‘clearer’ rules to "ensure the package is coherent and consistent."

This means that the personal projection method of comparing energy plans may see some changes as well in the coming months. Read more about that here.

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