Ofgem tells energy suppliers to cut the confusion

Energy suppliers have been told to dial down the confusion around pricing, or face a terrifying punishment: a trip to the Competition Commission.

by Dave Waller
Last Updated: 02 Jun 2011

Energy watchdog Ofgem says consumers are being 'bamboozled' by the sheer number of energy tariffs on offer - of which there are now apparently more than 300. Ofgem reckons this means the 'big six' energy suppliers can reap higher profits from us, because we're less likely to switch to a cheaper option. So the regulator is riding in on its electric steed, pledging to 'sweep away this complexity' and create a fairer world where families can compare prices and pick a good deal with ease.

This might sound like a bright idea. But if past form is anything to go by, we may end with a low-watt solution. Ofgem ran a probe into the industry back in 2008, and came up with various measures designed to boost competition. It now says the response to that effort was 'disappointingly poor'. Much like half the country after paying their gas bill these days.

Ofgem's investigation showed that the big suppliers have enjoyed a dramatic improvement in profitability in the last couple of years. Tellingly, it found evidence for the first time that they've been faster to raise their prices when wholesale costs have gone up, than they have been to cut them again when costs fell; in other words, they've taken advantage of higher input costs to boost their margins. Equally, this period has coincided with a big rise in the complexity of tariffs, which have made direct comparison with other providers more difficult.

So what's the answer? Well, Ofgem says that if the big six don't implement wide-ranging reforms in the next six months, they'll be hauled in front of the Competition Commission. It also thinks more competition would help: it's cooked up the idea of forcing these suppliers to auction off up to a fifth of their generation capacity, to help new firms to enter the market. And it's come up with some new ways to make it easy to compare suppliers' 'per unit' price.

Let's hope this works. There seems to be a growing trend in some industries of confusing customers to the point where they either can't find the cheapest solution or simply give up trying. Punters suffer the same trials with mobile phones, and even tickets. And this confusion is clearly not always accidental: TV show Dispatches reckons that rail companies are employing 300 'delay attribution officers', whose only job is to find ways of avoiding paying when customers try to claim compensation for poor service.

If only we could be that canny when it came to paying our gas bill.

Finance Energy

Find this article useful?

Get more great articles like this in your inbox every lunchtime