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Energy bill reform: Questions remain

Are Ofgem’s reforms really going to shake up the energy market?

Ofgem

Ofgem chief executive Alistair Buchanan

From next winter, energy companies will be required to offer consumers the best possible deal, as part of legislation brought about by Ofgem and backed by the UK government.

The idea is that it will simplify the energy market so that consumers have a clearer idea about the options available to them and will benefit from lower energy bills that best suit their circumstances.

However, many have questioned whether the reform goes far and enough and have cast doubt on the extent to which people will actually benefit.

Below are some common questions relating to the change and how consumers and the market will be affected.

Will everybody benefit from a cheaper tariff?

No is the simple answer. Though some people who pay little attention to fluctuations in the prices charged by energy companies may benefit, those who regularly switch suppliers may find they are actually worse off.

People who benefit from heavy discounts may no longer be able to take advantage of such deals due to the increased transparency in the market.

Will companies be strictly limited to four tariffs?

Yes, but they can have four for each fuel type – gas and electricity – so it will technically be eight in total. One of these will have to be a standard-variable rate, with suppliers able to choose the other three from a number of options, including online, green and fixed.

Will there be a way of comparing tariffs?

Yes – energy companies will be required to issue a tariff comparison rate (TCR) for each type of tariff, which will resemble the APR rate on loans and credit cards and give people the chance to weight up their options.

Will I always get the best deal?

That is the intention of the scheme, but it is unlikely to be the case, as suppliers will only be required to tell people about their cheapest tariff – not those offered by competitors.

Is the scheme finalised?

Some legislation could be pushed through at a later date; the energy market regulator hopes to eventually force companies to show customers the cheapest deal from across the entire marketplace, though there are no concrete details on this yet.

How do I take advantage of the reform?

For now, the best option is to seek an independent and impartial comparison of the whole market, rather than relying on the current supplier to offer the best deal.

 What’s next?

The legislation is due to come in this summer, but many say it does not go far enough.

Ann Robinson, Director of Consumer Policy at uSwitch, says Ofgem needs to undertake a “consumer education programme” which will give people the appropriate knowledge and insight to get the best possible deal.

As well as overcoming initial concerns, it will debunk myths and give consumers the confidence to seek the best tariff available to them.

What else can be done?

Another suggestion is to introduce Annual Renewal Notices on energy tariffs, which would prompt consumers to check the market to see how their current tariff compares to those offered by other suppliers.

Such a move would prove popular with the vast majority of consumers, according to opinion polls, which gives Ofgem plenty of food for thought as the reform is rolled out in the months ahead.

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