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Ofgem announces energy market shake-up

Ofgem announces energy market overhaul, but is warned it falls short of what is needed.

Electricity Bill

Ofgem’s plan to simplify the energy market by forcing energy suppliers to automatically offer customers their cheapest tariffs has taken a step closer to reality, after the government placed its support behind the proposals.

Last October, the industry regulator expressed its intention to eliminate “poor behaviour” by suppliers and address the lack of transparency in the market which is leading to confusion among customers.

Now, Ofgem has reiterated its intention to bring clarity to the market and make it easier for customers to get the best deal – and the move has the support of the coalition.
Alistair Buchanan, chief executive of the regulator, said he is “determined” to press forward with the plans, describing it as the most “far-reaching shake-up” of the retail energy market since competition was introduced.

A huge step forwards

David Cameron – who drew criticism when prematurely announcing the shake-up in October, before any solid plans had been finalised – has delivered on his word to bring about the legislation.

“The package announced today is a huge step towards energy bills that are more fair for everyone. This is about putting people before profits,” he explained.

“The Bill will support this package, and make sure that all energy customers are put on their supplier’s lowest variable rate unless they choose otherwise.”

The reforms are set to come into effect in the summer, though energy suppliers are being encouraged to take a proactive approach.

“My message to the suppliers is – don’t wait for the legal process to take effect. Most have already embraced the reform agenda and now the way is clear for all of them to work with Ofgem to bring in reforms as soon as possible,” Mr Buchanan said.

Positive response

The industry has responded positively to the announcement, according to Angela Knight, chief executive of Energy UK, which represents energy suppliers.

She said the concerns of customers and politicians have been heard “loud and clear” by energy companies.

Under the terms of the reform, Ofgem will demand that energy companies offer no more than four core tariffs for each fuel type.

Suppliers will also be required to present clearer bills highlighting the cheapest tariffs and treat consumers more fairly. The punishment for failing to follow these rules will take the form of financial penalties imposed by Ofgem.

Mr Knight said energy companies have already “dramatically reduced” the number of tariffs and pledged to help all consumers move to the most appropriate deal for their circumstances.

“Clear choices are here to stay, and switching is faster and easier than ever before. A look at suppliers’ websites shows how much work has already been done,” she explained.

Ms Knight said the industry will now work closely with Ofgem and the government on “all stages” of the reform programme.

Falling short’

Ann Robinson, Director of Consumer Policy at uSwitch, disagreed with the prime minister’s view: “These measures are in danger of falling short of delivering a healthy, competitive market. Consumer engagement in the energy market is at an all-time low so while we welcome moves that will make it easier for households to shop around for a better energy deal there also needs to be a spur.

“We want to see consumers actively encouraged and supported in shopping around across all suppliers, not just their own, an annual prompt in the form of an Annual Renewal notice, similar to car or home insurance, and strong success criteria that measures the impact of reforms on switching across suppliers. This would help to get competition moving, which is the best way to help consumers and for them to enjoy lower prices and better products and services.

“The reforms will give consumers clearer and simpler information and suppliers will be a lot more upfront with their customers about their cheapest deals.

ann robinson

“However, it’s vital that consumers are not simply encouraged to act upon what their supplier says – they should always be prompted to seek an independent and impartial comparison of the whole market to see if they could get a better deal elsewhere.

There is currently almost a £250 difference between the cheapest and most expensive tariffs on the market – given the high cost of energy today consumers can no longer afford to be missing out on such savings.

“Consumers also need to be encouraged to shop around if we are to continue to see small suppliers and new entrants come into the market and thrive – these provide a healthy challenge to the big six and a viable alternative for consumers.”

Education is key

“Consumer education is key – we urge Ofgem to now undertake a consumer education programme so that all consumers are fully equipped and understand how to get good value from the competitive energy market. This will overcome concerns, get rid of the myths and give people the confidence to behave as consumers.

“We are also urging Ofgem to introduce Annual Renewal Notices on energy tariffs, similar to those on car and home insurance – these would be an annual prompt to check the market to see how your current deal and supplier compares and our research shows that this would be a popular move with the vast majority of consumers.

“These reforms are vital as consumers deserve a market that works for them – the only way of knowing if they are really working or not is to see what happens to consumer engagement. If switching between suppliers goes up then the measures are working, if switching goes down and more consumers end up sticking with their current supplier then the measures are failing – it has to be as black and white as that.”