Oct. 19 (Bloomberg) -- The U.K.’s energy regulator proposed limiting prices suppliers can offer and telling them to post the cheapest rates on bills as the government backed off a pledge by Prime Minister David Cameron to impose the lowest possible rate.
“Our plans will put an end to consumers being confused by complex tariffs,” Alistair Buchanan, chief executive officer of the watchdog, said today. It’s “the most far-reaching shakeup of the retail energy market since competition was introduced.”
Under the regulator Ofgem’s plans, which would be enforced with fines, suppliers would avoid complex “multi-tier” charges and customers would default to the lowest available price at the end of fixed-term contracts, it said today in a statement. More detail on the proposals will be published on Oct. 26, followed by a consultation period before the watchdog makes its decision.
Energy prices have dominated political debate this week after Cameron said Oct. 17 that the government would legislate to force energy companies to charge their lowest possible price. The government backed away from the pledge yesterday, saying companies may be forced to inform consumers of lower tariffs. Some groups said the earlier plan might have curbed competition.
“These measures should go some way to help restore confidence in the retail energy market and reduce political pressure,” Dominic Nash and Guillaume Redgwell, analysts at Liberium Capital Ltd., said of Ofgem’s plan. “We now expect the start of the introduction of these reforms from next summer.”
Suppliers would be able to use only four tariffs for each fuel and all would be set as a standing charge and single unit price under the proposals. The plans also include the need to provide vulnerable consumers and those who haven’t switched suppliers for some time with information about the cheapest tariffs available across the whole market, Ofgem said. Energy and Climate Change Secretary Edward Davey welcomed the moves.
“Details will not be published until next Friday, leaving most questions unanswered,” Martin Brough, an energy analyst at Deutsche Bank AG, said today in a report to investors, citing a lack of clarity over how new tariffs would work with government policies on green energy and smart meters. “Perhaps next week’s consultation will shed more light on these issues, but energy policy for retail customers still looks to be in flux.”
Cameron had been responding to public anger after utilities including Centrica Plc and RWE Npower Plc increased prices.
“Utilities’ investors will need to be thick-skinned as political rhetoric will match” the price gains, Liberum said. “However, with much of these increases either inevitable or linked to government policy, we see little wiggle room.”
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