Ofgem will release a full document in March. After a final consultation round Ofgem expects suppliers to voluntarily agree to the changes kicking in late in 2013 – or face binding new legislation.
Here are some of the key reforms suggested by the document:
Suppliers will not be forced to transfer customers en masse to other suppliers.
Suppliers will have to eliminate preserved (termed ‘dead’ in the release) tariffs that bring ‘no value’ and transfer these customers onto their cheapest variable rate.
All tariffs must have a standing charge and a unit rate. If so, then this may impact some smaller supplier whose tariffs are made up of just a unit rate. It is not crystal clear whether suppliers would be allowed to create tariffs with a Standing Charge and two unit rates.
Suppliers have to tell their customers on the bill what their cheapest tariff is.
Discounts appear to no longer form part of a tariff. Customers will be able to mix and match tariffs with discounts but the documents offers no details on this.
And this is not yet clear:
Do suppliers have to offer the same tariff choice for all payment methods, incl. for prepayment meters? This is not explicitly stated in the document, but is potentially important as it may have big implications on tariff choice for traditionally more expensive payment methods, such as prepayment, where suppliers have generally not been eager to compete. The same question applies for fuel types – do suppliers have to make all their tariffs available as dual fuel, gas and electricity tariffs?
Tariff proliferation may not really end if customers are asked to mix and match discounts with tariffs and have the choice of all fuel types. The number of tariffs and tariff variations could potentially explode further. It is not yet clear how this will work.
Our preliminary conclusion is:
Customers will still have to compare supplier tariff deals against each other – nothing in the document suggests that energy suppliers will have to do this job for them.
We see no incentive for suppliers to offer cheap variable rates.
The market will shift in a big way to fixed rate deals.
Check out our contribution to the latest edition of CNBC’s The Business Class. As usual this edition (number six in the series) is hosted by investment guru James Caan of Dragon’s Den fame who invited our own Joe Malinowski as an expert advisor.
The subject of the programme is Ovo Energy, a start-up energy supplier launched by Stephen Fitzpatrick to take on the big guys. The big question that the programme seeks to answer is: where next now that the business has grown its customer base to about 100,000 households…
What has been said?
In answering a question about rising gas prices, Mr Cameron told MPs “I can announce that we will be legislating so that energy companies have to give the lowest tariff to their customers.” It is understood that the announcement arose from the Prime Minister’s concern that energy suppliers were ignoring requests to offer lower prices voluntarily. Continue reading →
From 15 October 2012 SSE’s battered customers will be faced with the burden of having to pay an extra £102 a year to heat their homes.
But while the vast majority of SSE customers are guaranteed a thumping great price increase, they are not going to be the only ones. Although none of the other of the Big 6 energy suppliers has yet announced price increases, many customers will nevertheless face higher prices simply as a result of their tariffs expiring. Continue reading →
British Gas has sent out a clear warning that energy prices are likely to rise again later this year. In a statement to the City it said that “the forward wholesale prices of gas and power for delivery in winter 2011/12 are currently around 25% higher than prices last winter, with end-user prices yet to reflect this higher wholesale market price environment.” Continue reading →
When OVO Energy increased the price of its New Energy Fixed tariff by 8% (around £70 a year) at the end of April 2010, we cautioned that this was an early warning sign that discounted tariffs were probably on their way up. And while we have yet to see the other new entrant (first:utility) push its prices up, we have seen the second major warning sign. Recently, Scottish and Southern Energy replaced its cheapest online tariff with a new tariff, Go Direct 5 that is 10% more expensive than its predecessor (£88 for the average user). Continue reading →
Today OVO Energy increased the price of its cheapest tariff, New Energy Fixed, by around 8% (£70) from £855 to £925 for the average Dual Fuel customer.
To be clear, OVO Energy customers are not seeing a price increase, as their existing tariffs are fixed for a 12-month period. It is just that new customers will no longer be able to get the same cracking deal that they could have had yesterday. Continue reading →