Ofgem Retail Market Review

Ofgem toady (21/02/2013) offered an insight into its latest efforts to reform the energy market (see our previous comment here).
Ofgem’s full statement can be downloaded here.
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.

What is clear is that lots of change is coming…

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