Energy tariffs to be simplified

20 November 2012 Last updated at 10:13 ET

Energy companies will be able to offer only four tariffs each for gas and electricity under government plans to get customers a better deal on energy.

The government says it wants customers placed on the cheapest available price by summer 2014 at the latest.

However, ministers admitted they could not guarantee all households would see their energy bills cut.

Business and consumer groups warned the plans could mean some of the cheapest tariffs on offer disappear.

Labour welcomed plans to make tariffs simpler, but said the government also needed to reform the energy market and create a new watchdog to force companies to pass on price cuts.

The proposals, which are expected to be included in the forthcoming Energy Bill, have been put out for consultation until January.

'Bamboozled '

They include forcing energy firms to offer just four core tariffs for both gas and electricity - a fixed price for a fixed term and a standard variable rate, with two others based on different criteria such as payment method or whether renewable energy was a factor.

Energy suppliers would have to offer one price for each of the four tariffs, although they could still have discounts for dual fuel or lower cost payment methods such as direct debit.

Customers on "poor value" out-of-date tariffs, who are paying a higher rate than their supplier's cheapest standard tariff, will be switched to the cheaper rate.

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Government plans to simplify energy tariffs

• Energy companies will be able to offer only four tariffs for both gas and electricity.
• These must include a variable rate deal and one with a fixed rate over a certain period of time.
• The remaining two can be chosen by the energy supplier and may include a green tariff or similar, whatever the supplier thinks is competitive.
• Suppliers must offer just one price for each of the four tariffs.
• Expensive, out-of-date "dead tariffs" will be banned, with customers switched to their supplier's cheapest standard tariff.

Energy Secretary Ed Davey said: "I'm determined to ensure all consumers get a better deal on their energy bill and get the cheapest tariff they can.

"Bill payers will no longer face the impossible choice between hundreds of tariffs, each customer will have a maximum of four tariffs for gas or electricity per supplier to consider.

"And households will have personalised information from their supplier on their bills about the cheapest tariff the supplier offers for their payment method and the cheapest tariff overall.

Mr Davey told BBC News he couldn't guarantee all customers would see their bills cut, but the majority of people would benefit and it would be "easier" to get lower bills.

The government said it was building on recent proposals by the energy regulator Ofgem, which has been looking into pricing for some time.

Ofgem welcomed the move and said the proposals "will put an end to consumers being bamboozled by complex tariffs and deliver choice that consumers easily understand".

Currently most people buy their gas and electricity from just six big suppliers, although there are smaller suppliers, amid a vast selection of tariffs.

Renewable targets

The structure of the charges can vary depending on payment method (by direct debit, pre-payment meter, or credit transfer such as cheque), on whether it is an internet-only tariff, which part of the country the customer lives in, if the deal involves a fixed price, when the deal was launched, how long it lasts, and so on.

Christine McGourty, Energy UK: "Companies have already taken steps to simplify tariffs"

Business and consumer groups warned the plans could mean energy users paying more.

Adam Scorer, director of policy at Consumer Focus, said it was a "sensible move" but there was "a risk of unintended consequences and in particular a general levelling up of prices".

And the Institute of Directors said restricting choice would simply allow energy companies to increase their lowest tariff, ensuring a higher minimum price for consumers.

"Instead, the government should be promoting competition and making it easier for new companies to enter the energy market."

Angela Knight, chief executive of Energy UK, which represents the major suppliers, said any fall in energy bills could be limited because about half a bill is made up of costs other than energy - such as upgrading infrastructure, insulating homes and environmental levies.

Shadow energy minister Tom Greatex said: "Anything that can help simplify tariffs, and we've been calling for it for over a year, is going to be a good thing, but the devil will be in the detail.

"And this on its own isn't going to fix the problem. We need tariff simplification, but we also need fundamental reform of the market itself, particularly the way the wholesale market works."

Meanwhile, MPs have urged Mr Cameron to end uncertainty for investors and set clear targets for clean energy in 2030.

The Environmental Audit Committee says firms will only invest enough in new renewables if the 2030 target is fixed in the forthcoming Energy Bill.

But Chancellor George Osborne rejects the target - and BBC News understands he is now being backed by the prime minister.

The coalition is seeking a compromise to allow the Liberal Democrats to retain pride in their flagship bill.

Source: http://www.bbc.co.uk/news/uk-politics-20404659#sa-ns_mchannel=rss&ns_source=PublicRSS20-sa

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