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Ofgem – your ‘radical overhaul’ isn’t radical enough

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Ofgem’s proposed a ‘radical overhaul’ of the energy market. Great news for consumers who are confused by energy tariffs and bills, but is it enough to make energy companies play fair?

I’m an energy company, and have I got an amazing deal for you! How much do you pay for your gas and electricity? I bet it’s too much?

OK, so what I’m going to do is drastically reduce the cost for you – my favourite new customer. How? I’m just better value. Sign here. Thanks.

The problem with switching your energy supplier

Sounds too good to be true, right? Well, exactly. At the moment there’s a real problem with the sale of energy tariffs, and it’s something we’d like Ofgem to take notice of.

If you compare different energy suppliers and find a much cheaper deal than you have with your current supplier, you’d probably assume that the best thing to do is switch. That way you’ve got the cheap price and you’ll pay less.

The huge problem is that there’s no guarantee that deal will still apply by the time your switch has gone through. So you could have a brilliant price when you sign up, but in the six weeks that it takes to move to your new supplier, they could whack the price up.

Ofgem’s crackdown on energy companies

Today Ofgem announced that they are unimpressed with the way the energy market is working. They slammed energy companies for offering a confusing array of tariffs and a lack of transparency in their pricing.

This review is a welcome step forward, as it’ll encourage (and eventually compel) companies to play fair with their customers – at least in terms of the information they have to provide.

They’ll have to offer costs that are easy for us to compare and stop offering two-tier standard tariffs. Good news for you, as it means you’ll be able to compare your energy costs more easily, and switch to a cheaper one if you like.

Ofgem should insist on price guarantees

Sadly there are still some fairly big omissions in Ofgem’s review, the main one being a price guarantee. If energy companies were made to guarantee prices for the time it takes you to switch companies, the situation I explained at the beginning of this post wouldn’t happen. The price you’re quoted when you sign up will be the price you pay when you start with your new supplier.

That doesn’t sound like too much to ask, does it? And yet Ofgem haven’t mentioned a price guarantee in their overhaul.

We’re pleased that Ofgem’s announced a radical overhaul, as the energy market is clearly failing consumers – only 24% of people think their energy company is ‘trustworthy.’  What’s more, only 25% of of people make the effort to switch their energy tariff.

But the main issue we have with the review is that it isn’t quite ‘radical’ enough. If we’re pulling skeletons out of the closet, why not have a thorough spring clean in there too? Let’s get to the bottom of all the issues at once, and make sure that in future, switching energy company is simple, transparent and fair.

Comments
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rarrar says:
21 March 2011

For a start :
Display tariff details prominently on bills and in online account details.
Give different tariffs proper easily distinguished codes rather than long names which all seem the same!

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Dave says:
21 March 2011

Rather like the Irish man in the joke who, when asked how to get to London replied “Well, I wouldn’t start form here”, my response to this is that we are starting from the wrong angle: Energy tariffs should be fixed across all suppliers and there should be no question of switching suppliers to get a better rate. Additionally all suppliers should be legally obliged to supply all types of customer at the same rates, i.e. there should be no difference in what is charged if you pay by direct debit or by cheque, if you conduct your account on line or the traditional way, etc.

In other words, effectively, the energy supply industry should be renationalised.

I don’t see how, in a privatised, capitalist, “free” market, it is ever going to be possible to get the sort of transparency, fairness and ease that is being asked for: to have these things would be to make the market unattractive to shareholders and investors, so I think we are starting in the wrong place and expecting the impossible.

Sadly I don’t see any chance of any government renationalising either, so I reckon we may as well all resign ourselves to the fact we’ll never get a fair deal.

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terfar says:
22 March 2011

I don’t completely agree that every tariff should be the same. If I pay in full, on time by bank transfer and I provide the meter readings on line, and receive invoices by automated email, negating the need for any manpower whatsoever, I should get a discount and pay less.

Someone who does none of these has to have the regular services of a meter reader, has to have someone send out a bill, needs to have someone to send the red reminder and then needs the use of a bank teller to take the cash payment, etc. Why should I subsidise them?

However, I do agree that the cost per unit should be level across the board with automatic discounts for everyone for night usage.

If the suppliers don’t want to play fair, then we should be allowed to buy our energy futures to stabilise our future budgets with the suppliers taking the hits if the price rises.

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Nikki Whiteman says:
23 March 2011

Hi all, some really interesting comments here. I’m not too sure about the idea of renationalising, so I spoke to one of our resident experts Fiona Cochrane, and here’s what she had to say:

“Renationalising energy supply is an interesting idea. One question that needs to be considered is whether people really want to choose either their supplier or their tariffs. Some may say that there’s not much difference between the bigger energy suppliers. But some of the smaller energy suppliers offer something different- well they need to if they are ever going to compete. So perhaps what is needed is a leg up for these companies to give us more real choice and exert pressure on the bigger players. There is also the question about the sort of companies that provide utilities – not just energy. Are shareholder based companies the best ones? What about not for profits? Or cooperatives?

“But back to renationalised or not- if we do continue with a market, that doesn’t mean that there isn’t room for streamlining the “bamboozling” energy offerings. Maybe this would encourage suppliers to place more emphasis on competing on price or even customer service! Equally if there was renationalisation and we had state run energy suppliers, that doesn’t mean there would be a single price. Aside from the different costs of distributing energy around the country, the different payment and account management methods have different costs- so why shouldn’t someone see the benefit from having an account that is cheaper to run than their neighbours?”

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randomperson says:
23 March 2011

Regarding your six week price guarantee, the Third Energy Package is in the process of being transposed in the UK. This will reduce the time taken to complete a switch of supplier to three weeks, down from the current four to six weeks. So that will be an improvement.

What happens if you sign up right to a new supplier or tariff before a company announces an across the board price increase? The six week guarantee might give you an extra week or so at the old, pre-increase prices but they’ll go up just like everybody elses once that period is over. Is that really going to restore trust or faith in the process? Or is it just a very temporary delay to what would happen anyways.

I think it is right that Ofgem has focussed on simplifying tariff structures – that has the better chance of making the market easier to understand for the average person.

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Charlotte Slayford says:
28 March 2011

An interesting development from Ofgem announced today – energy suppliers must give 30 days advance warning if their prices are going to increase. We welcome this move, as we’ve campaigned for years to make advance warnings mandatory. http://www.which.co.uk/news/2011/03/energy-suppliers-to-give-30-days-price-rise-notice-249038

This has been on the cards for some months but has officially been given the green light today, coming into effect on 28 April. Good news, but unless prices are guaranteed for a set period, people who switch could find the price they end up paying isn’t the one they signed up for, so Ofgem will need to keep a watchful eye on this.

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B. Martin says:
7 April 2011

Ofgem do not have the power to introduce radical changes against the wishes of the large power companies.
Ofgem should have the power to set the tariff for all domestic, small comercial and small industrial consumers and to ensure that large consumers are offered an economical tariff. The U K is a relatively small island and therefore there should be only two prices for any one category of consumer throughtout the land, including the islands.The two prices to be a twentyfour hour use and an off peak charge as at present.The aim of the price control would be to fix the tariffs for the following six months; changes would only be allowed if fuel costs increased and the current price became totaly uneconomic.The present NETA pricing system to be abondoned, generators would be required to submit their prices for the next month so that Ofgem could declare a variation in price, up or down, if justified.Coupled with this the utilities should be reformed by statute so that they have to be British companies, registered in this country and their shares changed to non voting bonds paying a maximum dividend of 5 pence per bond; they would also have the duty to ensure that the supply would be guranteed at all times to meet the present and future demand; Ofgem would also to have the same duty and to ensure that the price of electriciy was the most economical.In short the utilities would be required to place the good of the country before their companies interests.Ofgem in conjunction with National Grid would decide where and when new power stations and grid reinforcements were necessary. National Grid would become a subsiduary of Ofgem.
It should be established that essential utilities are controled by one overiding authority and not left in the hands of dozens of private companies who will to some extent put the interests of their
company before that of the country.
In addition all “carbon and so called environmental taxes ” should cease, Ofem should have the duty to ensure that the best interests of the country are implemented without the need for taxes of any form.
Similar arrangments should be applied to the water and supplies.

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B. Martin says:
12 April 2011

With reference to my comment of 7th April the last line should read- Similar arrangements should apply to the water and gas supplies.
Your “expert” Fiona Cochrane does not appear to understand the supply system.Can you confirm her credentials,i.e. is she a chartered engineer or similar professional with at least 10 years experience in the electricity supply industry?
Consumers do not have a free choice of supplier, the supply only comes from the local distribution company and the grid, the only so called choice is the company to which you pay for the electricity that you use. The price is mainly set by the distribution and transmission companies.It therefore follows that the only fair way of operating the system is for it to be nationalised in much the same way that it was before on a not for profit basis.
I await our reply with interest.

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Hannah Jolliffe says:
13 April 2011

Hello, we’ll do our best to get Fiona’s response to the issues you’ve raised. In the meantime, can I remind you that we do have our commenting guidelines that we expect all users to take note of before posting. These stipulate that while we promote healthy debate, we don’t tolerate harassing or offensive comments directed at others. Here are the full guidelines: https://conversation.which.co.uk/commenting-guidelines/

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frugal ways says:
13 April 2011

The issue can be sorted out quickly using the law, something that all the various quangos, regulators, watchdogs, etc, are incapable of doing – as enforcing the law would negate the need for said watchdogs, regulators, in effect, put them out of business!

If a company advertise a product or service and upon purchase, that price is not accurate or available, then the law states clearly that it is misrepresentation at the point of sale.
This falls under trading standards law using the sale of goods act.

Trading standards should enforce the law and prosecute the company advertising a price that is inaccurate, each and everytime it is reported to them by an individual.
Job done, simple.

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