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Ofgem 'remedies' to tackle failings in energy market

The energy market in the UK has long been a source of controversy, with customers facing a bewildering array of tariffs and deals from suppliers, dominated by the 'big six' companies. This prompted a review by the Competition and Markets Authority (CMA), published in June 2016, whose proposals Ofgem are now charged with putting into effect. The aim, according to Dermot Nolan, Ofgem's Chief Executive, is to 'free up competition and innovation in the market in order to drive down bills and improve service to all consumers'.

'Disengaged' customers

One of the main problems is that many consumers are 'disengaged' with the market, and simply can't be bothered or don't know how to switch tariffs or suppliers. This is often a problem with 'vulnerable' people such as the elderly, and means they end up paying over the odds for their gas or electricity. Companies tend to offer the best deals to entice 'new' customers, whereas their longstanding customers on more expensive standard variable tariffs are largely overlooked.

card meterPrepayment premium

Another bone of contention is the higher rates charged for pre-payment meters. Suppliers say this reflects the cost of installing the meters, but this hits hardest those who can least afford the higher bills, such as tenants of rented properties and people who have a history of debt.

So what is Ofgem planning to do?

  • A database of customers to be shared with energy companies to identify those on standard tariffs so they can be offered alternatives by rival suppliers.
  • A price cap on over 4 million customers on prepayment meters, reckoned to save them an average of £75 from April 2017. This will last until 2020, when smart meters will have replaced prepayment meters.
  • Removing some requirements around 'simpler' tariffs to encourage 'innovative new tariffs' that consumers can understand.
  • Great flexibility to price comparison websites about how they display tariffs, with more options for highlighting good value tariffs and exclusive deals with suppliers.
  • Trials of how best to prompt customers into considering switching their tariffs.

'Onus on the customer'

Criticism of the measures has come from various quarters, with the refrain that there is still too much onus on the customer to find the best deal. After all, people often have better things to do. Even so, the savings can be considerable, up to £300-400 per year according to some experts. Bryan Orme of the Institute for Public Policy Research commented that 'those on lower incomes and the over-65s were likely to remain disengaged and overcharged.' He added that 'By far the best way [to reduce people's bills] is through investment in energy efficiency improvements to ensure that costs are brought down and kept down.'

Dale Vince, founder of Ecotricity, was more scathing: 'They have opted to create a new abuse: sharing of everyone's personal data with every energy company in the land, which is likely to create a blizzard of junk mail.'