Home

UK regulator Ofgem promises reform as energy suppliers’ net margins rise 733%

UK energy regulator Ofgem has promised a “radical reform” of the market as the amount that energy suppliers’ make from a typical dual fuel customer rises a staggering 733% in the last four months.

According to Ofgem’s estimation, the net margin for a typical customer with one of the ‘Big Six’ energy suppliers has risen from £15 in June this year to £125 this month.

There has also been growing pressure from politicians and consumer groups to tackle energy suppliers’ complex tariff structure – which current number over 400 different options.

So today Ofgem announced a range of proposals centred on reforming tariffs to ensure that all customers will be able to compare prices easily and be able to choose the tariff that suits them.

For those wanting a no frills tariff, there will be a simple unit price and fixed standing charge set by Ofgem on offer.

More innovative tariffs will also be available, but those will come with protection for customers against price increases during the course of the deal.

“When consumers face energy bills at around £1,345 they must have complete confidence that this price is set by companies competing in a fully competitive market. At the moment that is not the case,” says Ofgem chief executive Alistair Buchanan. “That is why a radical break with the past is needed.”

Ofgem says it will follow up these proposals with a more detailed look at the energy market for the business sector, before turning its attention to breaking the stranglehold of the Big Six in the wholesale electricity market and making their company accounting practices more transparent.

Energy Secretary Chris Huhne has welcomed the proposals, promising that the Government will work with Ofgem in the reform of the market to help keep prices down.

“Rising energy prices due to global gas price hikes are hitting households hard, but I am determined that we make the industry work for consumers,” he said in a statement. “I want to give Ofgem more teeth and customers more rights, including a faster switching time and better information from suppliers.”

The Secretary will be meeting with energy companies, consumer groups and the regulator on Monday to find ways to help consumers save money on their energy bills this winter.

Consumer and green groups, including Which? that has been campaigning for some time for a simple format for all tariffs, have also applauded the move.

“Which? supports tough action by the regulator Ofgem to make tariffs simpler. This will help remove some of the complexity and confusion in the energy market that infuriates consumers,” says executive director Richard Lloyd.

Energy company E.ON has responded to the proposals saying that it is already looking at how it can simplify its tariffs, but says there must be a balance with providing customer choice.

“We are concerned that Ofgem's proposal for a single evergreen tariff does not appear to have evolved,” the company said in a statement.

For further information:
www.ofgem.gov.uk/
www.decc.gov.uk
www.which.co.uk
www.eon-uk.com

14 October 2011

Back