The U.K. set out proposals to ensure electricity suppliers charge customers the lowest possible prices for their gas and power, after energy companies came under attack for putting up rates.
The measures include forcing suppliers to cut the number of tariffs to four for each fuel to end confusion over competing prices, the Department of Energy and Climate Change said today. Companies would also have to automatically switch consumers to the lowest appropriate tariff unless they object.
The plans are aimed at defusing public anger after companies including Centrica Plc and SSE Plc announced price rises for gas and power. Prime Minister David Cameron wants to keep a lid on energy bills as prices increase faster than household incomes and pledged to ensure customers get the lowest charges.
“For too long people have been stuck on the wrong type of energy tariff, paying more than they need to,” Energy Secretary Ed Davey said. “I am determined to ensure all consumers get a better deal on their energy bill and get the cheapest tariff they can.”
The proposals came under fire from environmental groups Friends of the Earth and Greenpeace who said as long as Britain relies on volatile gas prices, bills will keep rising. “If the Prime Minister is really serious about tackling bills, he should stop his Chancellor’s dash for gas in the Energy Bill and focus on clean, home-grown renewables and efficiency measures,” Greenpeace Campaigner Louise Hutchins said.
The reforms may mean the end for the cheapest tariffs, said Corin Taylor, senior economic adviser at the Institute of Directors. “Clumsy regulation restricting choice would simply allow energy companies to increase their lowest tariff, ensuring a higher minimum price for consumers,” he said.
Kate Rose, head of energy at comparison website Confused.com, expressed concerns that consumers would be “blinded” by the changes, making them believe the automatic switch meant they got the cheapest tariff. While welcoming the step, she urged consumers to still shop around.
“The cheapest deal in an uncompetitive market will still not be a good deal,” Caroline Flint, Shadow Energy and Climate Change Secretary for the opposition Labour Party, said. Davey told the BBC Broadcasting Corp. that competition will prevent companies which try to “exploit” the plans.
SSE, which raised fuel prices on average 9 percent in August, and RWE Npower Plc, have both said Britain’s carbon-cutting policies added to their rate rises. Samantha O’Connor, a spokeswoman for SSE, said the utility has just three tariffs and hoped the government intervention results in a package that “enshrines fairness and simplicity” for customers.
The proposals, building on two years of work by energy regulator Ofgem, would end “dead tariffs”, or poor value rates that are no longer open to new consumers. Suppliers will have to add personalized information on consumer bills about the cheapest tariff appropriate to their payment methods, as well as requirements to give clearer information on switching.
The four tariffs will contain one standard variable rate tariff, and one fixed-term, fixed-price tariff with suppliers able to offer two remaining tariff types as they wish, according to DECC. Suppliers are required to offer a single price for each of the four tariff types.
The proposals end “consumers being bamboozled by complex tariffs and deliver choice that consumers easily understand,” Ofgem’s Chief Executive Alistair Buchanan said. The regulator will also enforce fair treatment of consumers using licence standards backed by fines, Buchanan said.
The government intends to include the measures in the forthcoming Energy Bill expected this month. All customers will be placed on the cheapest price available from suppliers for their chosen tariff type by Summer 2014 at the latest, according to DECC. The proposals are open for consultation until Jan. 4.
“I hope some energy companies will do the right thing and respond quickly even before these changes go through,” Davey told the BBC.