Energy firms to be limited to four 'core' customer tariffs under final Ofgem proposals

Ofgem is undertaking a formal consultation on the detailed changes (69-page / 955KB PDF) but has urged suppliers to implement its proposals "as quickly as possible", ahead of the outcome of that consultation. Proposals include simpler tariffs, clearer information to enable customers to switch suppliers more easily and tougher regulatory enforcement powers.

"Our reforms are the blueprint for the simpler, clearer and fairer energy market that consumers deserve," said Ofgem's Andrew Wright. "They have been delivered following two years of engagement with consumers and industry in the most comprehensive ever review of the retail market."

"Now that our proposals have been confirmed it also gives suppliers a unique opportunity to forge ahead, building on the progress some have already made, and begin to restore trust in the energy market. Further hesitation will only delay benefits for consumers," he said.

The regulator said that its proposals would, if implemented in full, be the most "radical reforms to the retail market since competition began". It expects tariff reforms to be in place by the end of the year and new standards of conduct for suppliers to apply from the summer, depending on the outcome of the consultation, it said.

Parallel reforms, which will be introduced as part of the new Energy Bill, will allow Ofgem to compensate consumers directly when energy companies break the rules. Ofgem currently has the power to fine energy companies up to 10% of their annual turnover for regulatory breaches. Companies may voluntarily choose to compensate consumers that lose out as a result of their wrongdoing, while a limited range of consumer complaints can be enforced by the Energy Ombudsman or the courts.

The final proposals would see suppliers required to cut the "baffling" range of tariffs currently available on the market to four "core" tariffs per fuel type; electricity or gas. Suppliers will still be able to offer 'dual fuel' or online account management discounts on top of the new tariffs, however these will be simplified to apply "uniformly" across all tariffs and expressed as £/pence per year. Expensive "standard" or "variable" tariffs that are no longer available will be banned, unless they offer value for money to consumers already on those particular plans, while additional protections banning price increases and 'rollovers' will be introduced for customers on fixed term contracts.

In order to help customers compare plans and switch energy supplier more easily, suppliers will be required to give customers personalised information on the cheapest tariff available for their circumstances. Ofgem also plans to provide better information on deals across the market to more vulnerable customers, and those who tend to 'stick' with one supplier, it said. Where possible, suppliers will be required to use a new standardised Tariff Comparison Rate (TCR) in all their communications and set out key terms and conditions using a standardised tariff information label.

New standards of conduct, to be backed by Ofgem's enforcement powers, are due to be introduced in the summer and will include an "overarching condition" on suppliers to "consider consumers' needs and treat them fairly". The standards, which are subject to a separate consultation (15-page / 242KB PDF), will deal with all aspects of customer contact and care including the firm's query and complaints handling processes.

Government energy ministers welcomed the final proposals, and warned suppliers that they would use powers contained in the Energy Bill if the changes risked being "delayed or frustrated". The Bill, which is currently before Parliament, is scheduled to become law before the end of the year.

"It's simply scandalous that over eight in ten of households, including the most vulnerable, are put off switching or engaging in the energy market," said Energy Secretary Ed Davey. "That's why I'm backing Ofgem's reforms to make it easier to compare tariffs and switch suppliers."

"These reforms are the fastest way to speed up delivery of simpler bills and a fairer system. This comes on top of moves in the Energy Bill to give Ofgem new powers to crack down on any rogue switching sites, and to ensure when energy suppliers break the rules, customers can be directly compensated," he said.

Ofgem is also consulting on additional licence conditions that would require large energy companies to publish wholesale prices two years in advance and commit to trading fairly with smaller players. It published its final proposal for a 'Secure and Promote' licence condition earlier this month.