Energy regulator Ofgem has proposed a radical overhaul of energy pricing practices to force energy suppliers into offering simpler tariffs so that consumers find it easier to compare prices.
The ‘big six’ energy suppliers in the UK would also be forced to auction off 20% of their output to smaller companies, allowing more competition in the sector. Thos who refuse would face a referral to the Competition Commission, said Ofgem.
Ofgem’s review found that competition is being stifled by a combination of tariff complexity, poor supplier behaviour, and lack of transparency. There is also evidence that the Big Six have adjusted prices in response to rising costs more quickly than they reduced them when costs fell.
Ofgem Chief Executive Alistair Buchanan said: “Energy companies have failed to play it straight with consumers and so Ofgem is proposing to break the stranglehold the Big Six have over the electricity market by making them auction up to 20 per cent of their generation output. This would increase price transparency and make it easier for new players to enter the retail market.”
Louise Hanson, head of advocacy at Which?, said, “This isn’t the first Ofgem investigation to show that the energy market is failing consumers. Unless the regulator takes decisive steps to clean up the sector, it won’t be the last."
Ofgem’s five proposed reforms are:
1. Price simplification: Restricting the number of tariffs for standard evergreen products from each supplier and standardising tariff formats, with suppliers allowed to compete on just a single "per unit" price. Consumers can then tell at a glance whether they can save money by switching. Automatic rollovers to new fixed-term products at the end of promotional periods would also be banned.
2. Breaking the power of the Big Six: Mandatory auctioning off of between 10-20% of electricity output, allowing smaller companies to offer more competition.
3. Tougher enforcement: Giving suppliers less freedom in how they interpret Ofgem obligations alongside tougher enforcement measures.
4. Reduce unfair contracting: Ensuring compliance with existing licence conditions and considering whether further licence amendments are needed.
5. Improve transparency: An independent accounting firm will be appointed to investigate how retail prices relate to suppliers’ costs as well as looking at how new EU legislation can help increase transparency.
Would you welcome more competition in the market? Do you think Ofgem’s measures are tough enough to make a difference to your household bills? Have your say.