Article by Tony Keeling, Director of Customer Service at SSE
If you’ve been following the debate on energy, chances are you’ll have heard something about Ofgem’s Retail Market Review (RMR) – a package of changes designed to make the energy market here in the UK simpler, clearer and fairer.
The review has been going on for over two years, and the result has been called the most significant reform of the energy supply market since it was privatised in the early 1990s. But exactly what are the changes and how will they affect you?
I’ll be discussing some of the most noticeable differences customers are likely to see, splitting them into the three key topics: “simpler”, “clearer” and “fairer”.
As competition in the market grew over the years, energy suppliers focused on designing products and tariffs that were tailored to the requirements of individual groups of customers. This had advantages, but the downside was that the market grew more complicated and it was not as easy as it should have been for people to tell which was the right deal for them.
So what’s going to change?
Number of tariffs
Ofgem is now simplifying the market by only allowing suppliers to offer a maximum of four core tariffs for any one type of meter or payment method. As part of the Building Trust campaign we launched in 2011, we cut our tariffs from more than 60 to only three. I’m pleased that this approach is now being enforced across all energy suppliers.
Type of tariffs
Ofgem has also decided that some types of energy tariffs should no longer be sold. One of the most noticeable of these is the tracker tariff. With tracker tariffs, most energy suppliers offered a set discount off their standard prices to customers choosing to commit to stay with them for a longer period. It’s pretty much the same idea as a tracker mortgage.
Although many customers enjoyed the benefits of tracker tariffs, Ofgem found that there were also many who were confused and didn’t understand that the prices on their tracker tariff could go up. Ofgem has therefore decided to ban tracker tariffs, unless suppliers link them to an external index like the Bank of England’s base rate, for example.
Structure of tariffs
Before RMR, tariffs would recover the fixed costs associated with supplying energy to a customer (things such as metering, IT and customer service) either through a set ‘standing charge’ or through a ‘No Standing Charge’ (NSC) tariff, which had two different unit rates. For NSC tariffs, the first ‘block’ of units of energy used was priced more expensively than subsequent units, so that the difference between the two unit rates meant customers paid for their fixed costs.
But customers and consumer groups felt that the NSC structure was potentially confusing, so Ofgem is banning it through RMR. We think this move is in customers’ best interests and last month we finished moving all customers onto a simple, fixed standing charge of £100 a year for each fuel, plus a clear unit rate for energy used.
Type of discounts
Energy suppliers can also no longer offer certain discounts. These include prompt payment discounts, percentage-based discounts and loyalty-based discounts.
We’re still able to offer discounts to customers paying by Direct Debit or who receive paperless bills, though, which pass back to customers the lower costs of those options.
All of these changes should have the effect of making it easier for customers to engage with the energy market and identify the best deal for them.
With any reforms, there are inevitably winners and losers. But in our view this is generally the right thing for customers and should help increase engagement and competition in the market – which has to be a good thing.