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Ofgem Instructs Energy Firms to ‘Simplify’ Tariffs

By Laura Elahi on March 22, 2011

Regulator Ofgem has issued a stark demand to the leading energy companies in the UK: simplify tariffs for consumers or risk being referred to the Competition Commission.

Having spent months criticising the leading energy firms for failing to pass on reductions in wholesale fuel costs to customers and increasing tariffs with the aim of protecting profit margins, Ofgem has finally decided to tackle companies such as British Gas, E.ON and Scottish Power.

According to Ofgem, the many tariffs introduced by the ‘big six’ energy companies have caused consumers to become “bamboozled” and unable to identify the most competitive packages. Ofgem added that the number of tariffs available to UK customers increased from 180 to more than 300 over the past three years or so.

Alistair Buchanan, the chief executive of Ofgem, said: “Consumers must have confidence that energy companies are playing fair at a time when they are being asked to foot the £200bn bill to pay for the investment Britain needs to ensure secure and sustainable energy supplies.”

Christine McGourty, of Energy UK, noted: “In response to customer demand, there is now a wide range of energy products available – such as green tariffs and fixed tariffs – to meet the diverse needs of different customers. If energy companies are not setting out these options clearly enough then this is something that should be addressed.”

Ofgem has been examining the pricing system of the big six energy firms for a considerable period of time but has proved toothless in forcing change. It could be argued that Ofgem is approaching the issue of excessively high fuel prices from a new angle by addressing the competitiveness between energy firms. Scottish Power is already facing a deeper investigation into its tariff structure by Ofgem.

Mike O’Connor, chief executive of Consumer Focus, welcomed the move by Ofgem, stating that the “energy market is fundamentally failing consumers and that comprehensive and determined action is necessary to set it on the straight and narrow.”

The cost of running gas central heating systems has increased substantially over recent years, as too has the cost of powering homes. With any luck, Ofgem’s new stance on energy tariffs will drive greater competition – and, possibly, cheaper prices.