Out-Law News 2 min. read

Energy market to be "fairer for consumers" from summer after PM approves Ofgem reforms


The energy market regulator has promised "tough new standards" for consumer suppliers after the Government backed its proposed reforms of retail energy.

Ofgem said that it would publish a consultation at the end of March setting out the detailed wording of new licence conditions which suppliers will have to agree to. A decision on whether or not to implement the reforms will be taken in May, it said.

The regulator's proposals include simplifying the market by restricting suppliers to no more than four core tariffs per fuel type, while consumer bills will have to show the cheapest tariffs available. Strict enforceable standards of conduct, backed by Ofgem's power to levy fines for non-compliance, will take effect from this summer if approved, while the other reforms would apply by next winter.

"Even in these tough times when we're having to take the difficult decisions needed to fix our economy, we're doing everything we can to help hardworking people and families," said Prime Minister David Cameron. "The package announced today is a huge step towards energy bills that are more fair for everyone."

"Our aim is that consumers will get the best possible energy tariff – no tricks, no loopholes – and we will use the powers we gained in the Energy Bill earlier this month to make sure this happens. 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."

Ofgem said that the proposals that would be consulted on were "mostly unchanged" from those it published last October. It intends to clarify how tariffs offered by supermarkets and other organisations that sell energy supplied by the main energy suppliers to consumers will be affected by the reforms, it said. It has also confirmed that suppliers wishing to offer "green" tariffs to consumers will have to do so as one of their four core tariffs.

The changes are intended to simplify the "baffling array" of tariffs currently on the market. Suppliers would be able to offer four tariffs per fuel type, i.e. four electricity tariffs and four gas tariffs. Companies that offer 'dual fuel' discounts to consumers they supply with both types of fuel, or discounts for 'paperless' billing, would be able to continue to do so as these will not be treated as distinct tariffs. Discounts would be simplified and applied uniformly across all tariffs as £/pence per year.

New tools intended to help consumers switch suppliers would also be introduced, including a new tariff comparison rate (TCR) which suppliers would have to use in their communications in order to help consumers compare tariffs. Suppliers would also be required to give their customers personalised information on the cheapest tariff they offer for them. A pilot scheme where suppliers would offer "vulnerable" customers and those who have not switched for some time a personalised estimate of the cheapest tariff from across the energy market has been proposed, and Ofgem intends to establish a 'working group' with suppliers and consumer groups to discuss how this could work in practice.

New standards of conduct would be established which would place an overarching condition on suppliers to "consider consumers' needs and treat them fairly", and would enable Ofgem to take action against those suppliers that fail to do so. The regulator has also proposed additional protections for consumers on fixed term contracts, including banning price increases and rolling contracts.

"We are now counting down to the most radical shake-up of the energy retail market since competition began," said Ofgem chief executive Alistair Buchanan. "We know suppliers are serious about wanting to restore consumer trust and they need to grasp this golden opportunity to change their behaviour and get behind Ofgem's reforms so consumers get the simpler, clearer and fairer energy market they deserve."

"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," he said.

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