WIREDGOV

Energy tariffs are now simpler as Ofgem’s ban on complex tariffs comes into force today

It’s getting easier to get a better energy deal as Ofgem’s ban on complex tariffs kicks in.

The changes are part of Ofgem’s reforms for a simpler, clearer, fairer energy market. These reforms are the biggest changes to the retail energy market since competition was introduced in the late 1990s.

Ofgem is banning suppliers from offering complex tariffs, for example where consumers are initially charged a higher rate, which falls the more they use. The reforms also mean that once a consumer has decided how they want to pay for energy they will have just four tariffs to choose from for gas and four for electricity, from each supplier. Together these changes will make it far easier for consumers to compare deals and find the best tariff for them.

From April 2014 a range of reforms are also coming into force to give consumers much clearer information on energy. For example, suppliers will have to tell consumers regularly in writing which of their tariffs is cheapest for them on bills, annual statements and other communications.

Andrew Wright, Ofgem Chief Executive, said: “It is getting easier for consumers to get a better energy deal and by April further help will arrive in the form of much clearer and personalised information.

“The aim of our simpler, clearer, fairer reforms is to ensure competition bears down hard on prices. Profits are not an entitlement, they should be earned by companies competing keenly to offer consumers the lowest prices and the best service.

“Now it is up to suppliers to build on our reforms to restore consumer confidence in the energy market. There are good signs that they are taking up this challenge.

“Ofgem will produce an annual report to consumers on the health of competition in the market. We will not hesitate to take further action if we see evidence of further barriers to competition.”

Under Ofgem’s reforms suppliers must structure their tariffs using only a single unit rate and, if they choose, a standing charge. Some suppliers have tariffs with a zero or low standing charge, and if consumers consider these tariffs better suit their needs, we expect that suppliers will keep offering them.

The ban on complex tariffs follows the introduction in October 2013 of Ofgem’s rules for fixed-term tariffs. These rules ban suppliers from increasing prices on fixed-term tariffs. Suppliers are also banned from automatically rolling householders on to another fixed-term offer when their current one ends.*

And, since the end of August 2013, all suppliers have had to meet new standards of conduct set by Ofgem. These require suppliers to treat all consumers fairly and in an honest, transparent and professional manner. They must make sure that any information given to consumers is clear and easy to understand.

-Ends-

Notes to Editors

See the simpler clearer fairer section of our website which has all the information consumers need to know about our reforms.

Ofgem’s retail market reforms are as follows:

Fairer treatment – introduced in August 2013

Since August new Standards of Conduct require suppliers and any organisation that represents them, such as brokers or third party intermediaries, to ensure that each domestic customer is treated fairly. This means suppliers must behave and carry out any actions with consumers in a fair, honest, transparent, appropriate and professional manner. Suppliers must also make it easy for the consumer to contact them, and make sure that any information (whether in writing or orally) is:

• Complete, accurate and not misleading (in terms of the information provided or omitted);

• Communicated in plain and intelligible language;

• Relates to products or services that are appropriate to the customer to whom it is directed; and

• Fair both in terms of its content and in terms of how it is presented (with more important information being given appropriate prominence).

They must also:

• Act promptly and courteously to put things right when they make a mistake; and

• Ensure that customer service arrangements and processes are complete, thorough, fit for purpose and transparent.

*New consumer protection rules – introduced in October 2013

• These rules mean suppliers are banned from increasing prices, or making other changes to fixed-term contracts which are to the disadvantage of a customer. The only exceptions to this are “tracker” tariffs that follow an independent index over which the supplier has no control, or structured price increases set out in advance which are fully in line with consumer protection law. There are also transitional arrangements for certain contracts entered into before 15 July 2013, which will be allowed to see out their duration.

• Suppliers will be required to notify customers that their current fixed-term deal is coming to an end between 42 and 49 days before the contract ends.

• Between this notification period and the end of the fixed-term contract, suppliers will be banned from charging a termination fee should the customer decide to switch.

• Suppliers will be banned from automatically rolling a customer over onto a further fixed term contract.

• Instead suppliers will be required to default customers to an evergreen contract if the customer takes no switching action before the end of their fixed-term contract (from 31 March 2014 this default contract must be the cheapest evergreen tariff with the supplier).

• All customers on existing, expensive “dead tariffs” (evergreen tariffs that are no longer available to new consumers) must be transferred onto the cheapest evergreen tariff with the supplier by June 2014. A supplier will only be able to keep consumers on “dead tariffs” if they are cheaper than, or as cheap as, the supplier’s lowest evergreen tariff.

Simpler tariffs - introduced end of December 2013

• Suppliers are limited to offering up to four “core” tariffs per fuel (electricity and gas) and per meter type. Suppliers are also able to use any fixed-term tariffs in addition to their  four core tariffs, in collective switching schemes provided these schemes meet our criteria.

• Consumers told us tariffs were too complex and difficult to compare. We have addressed this problem by banning complex multi-tier tariffs, where, for example, consumers are initially charged a higher rate, which only falls if their consumption increases above certain levels. Instead, suppliers must structure their tariffs using only a single unit rate and, if they choose, a standing charge. Some suppliers have tariffs with a zero or low standing charge, and if consumers consider these tariffs better suit their needs, we expect suppliers will keep offering them. (For consumers with multi-rate meters e.g. Economy 7, suppliers will able to offer more than one unit rate)

• The complex way in which different discounts have been applied to tariffs has been confusing for consumers, making it harder for them to compare deals. And, in some cases, savings they thought they would make did not always materialise. Ofgem is simplifying this by only allowing suppliers to offer discounts for dual fuel and for managing energy accounts online. These will not be considered as “core tariffs” but as discounts and they will apply uniformly across all tariffs as £/pence per year.

Clearer information - to be introduced from April 2014

• New rules will be in place requiring suppliers’ routine communications to consumers to be clear, easy to understand and personalised to them.

• Suppliers will be required to give all their customers personalised information on the cheapest tariff they offer for them. This information will appear on each bill and on a range of other routine customer communications.

• Suppliers will use a new Tariff Comparison Rate (TCR), in bills and a range of other communications, to provide “at a glance” information to help customers make an initial comparison of tariffs. The TCR will be similar to the APR comparison rate used with credit cards.

• Ofgem is also requiring suppliers to provide personalised cost projections for the following 12 months based on the customer’s actual, historic consumption (or, where this is unavailable, the best estimate of their consumption. This will be included on bills and a range of other communications enabling consumers to compare tariffs more accurately.

• A new tariff information label will set out the key features of a tariff in a standardised label format. This is designed to help consumers easily compare all the different features of tariffs across suppliers.

• Suppliers will be required to provide consumers with an annual summary of their energy usage and costs in a standardised, easy-to-navigate layout. This annual summary will provide consumers all the information they need to confidently assess their options.  

• Suppliers will be required to give a personalised comparison of old and new prices in a simple pounds and pence form when they inform customers of a price increase.

• If suppliers are making any other change to prices, or conditions of a contract which leave the consumer worse off, they must provide a personalised indication of how this affects each consumer.

• Consumers will receive a notice before their fixed-term contract comes to an end, informing them of the tariff they will default to should they take no action in the interim.

Ofgem

Ofgem is the Office of the Gas and Electricity Markets, which supports the Gas and Electricity Markets Authority, the regulator of the gas and electricity industries in Great Britain. The Authority's functions are set out mainly in the Gas Act 1986, the Electricity Act 1989, the Competition Act 1998 and the Utilities Act 2000. In this note, the functions of the Authority under all the relevant Acts are, for simplicity, described as the functions of Ofgem.

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