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Ofgem’s ‘simple energy tariffs’ aren’t simple enough

A pile of lightbulbs

Were your winter energy bills shockingly high? If you’re thinking of switching suppliers to save money, the vast array of tariffs on offer might put you off. That’s why we need genuinely simple energy prices.

This spring may have been the coldest for more than 50 years, according to provisional figures from the Met Office. By June, I bet most of us have turned off our central heating. But I can’t have been the only person turning up the thermostat on the odd cold evening over the past few weeks.

I’ve tried to avoid doing so. After a longer and colder winter than usual, my gas bills have rocketed. Meanwhile my fixed-term energy deal came to an end earlier this year and I’m now on a more expensive standard energy tariff.

Obviously I need to get onto Which? Switch and find myself a cheaper energy deal. And yet, like many people, the thought of comparing and contrasting different energy company offers makes my heart sink.

This is one of the paradoxes of the energy debate. Energy prices are consumers’ top financial concern. Yet very few people switch supplier to save on their bills. In fact, in a new Which? survey, more than half of people said that they had never compared their energy tariff with others on the market to check if it was worth switching.

We need simplicity to get people switching

We’ve long thought one of the reasons for this is the overly complex way that energy tariffs are structured and priced. And that’s why we’ve been calling on Ofgem and the government to introduce a single unit price for energy tariffs – it needs to be as easy as possible to spot the cheapest deals at a glance.

In October last year, the Prime Minister promised to intervene in the energy market and force energy companies to put their customers on the best deal for them. We supported these plans, but warned that they would not work without the additional introduction of simple energy prices.

Our new research shows why the current proposals from Ofgem do not go far enough. When we asked people to identify the cheapest deal for them from a range of tariffs using Ofgem’s tariff comparison rate (TCR) proposal, just three in 10 got the right answer.

This shot up to eight in 10, when the tariffs were presented in the style of a petrol forecourt display, using a single unit price. Two thirds of people surveyed said they preferred the single unit price model, compared to just one in 10 for the TCR.

With MPs debating the government’s plans for energy market reform this week, there is still time to improve these proposals. But this will require the Prime Minister to intervene again and make sure that his energy reforms work for hard-pressed households.

Comments
Member

You’ve mentioned Ofgems current proposals, but what are they ? I suspect you’re right in what you say about what they’ve done but without evidence of what it is I’m only able to guess.

And yes to using which switch but you’d save more money if they then signed up via a cashback site if that company was offering, if not use a cashback site to go through to which switch and get a possible £17.50 cashback ( current at time of writing for the one cashback site I looked at).

Member

Hi William,

The full details of Ofgem’s proposals can be found in this PDF document under ‘simpler energy tariffs’.

Ofgem has proposed a Tariff Comparison Rate (TCR) with the aim of allowing consumers to compare the price of different tariffs across the market. The TCR is based on medium usage of both gas and electricity, but only a quarter of consumers are medium users. As a result, three quarters of people could be advised on a deal does not represent their actual usage.

Member

One hundred and ninety two pages. I want the executive summary. 🙁

Member

@Katie, Thank you, I think. Well I can certainly see what you mean. I almost died of old age by the time I found the section describing their proposed pricing structure.

Does seem like they’re trying to make things more complicated rather than more simple.

They do seem to have gone the way I was originally thinking by trying to cater for the different tariffs the are out there, like economy 7 etc. But that just brings us back to were we are know.

Member

Sorry about presenting you with such a meaty document on a Monday morning!

Member

No need to apologise, I’m sure you didn’t write it.

Member

wavechange, there is an executive summary, but the relevant bits of detail you’ll want are in the section on tariff proposals. Not too much to plough through.

Member

So there is. I was so busy looking at the length of the document that I missed this. Thanks, Malcolm.

Member

Yes I agree tariffs are too complex and completely misleading.
I would argue all standing charges and multi-tier tariffs are a complete rip off designed by marketing people to mislead people into thinking the deal is question is the best one.
Plus low users trying to do what everyone says is the right thing, “use less”, subsidise those who use more because they can afford to.
No standing charge and one unit price is the only fair and honest approach.
Anyone babbling on about suppliers having to cover fixed costs with a standing charge should be asking how supermarkets and petrol stations manage, they have fixed costs too but seem to get by without standing charges.