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Co-operative Energy warns that Ofgem proposals on tariff simplification could backfire

Posted on 14 October 2011

Ofgem’s proposals on simplifying energy tariffs - announced today - could backfire. It’s a bold move but we are concerned that this could be a case of good intentions paving the road to even more customer confusion and industry chaos. Ofgem’s proposals on tariff simplification could have unintended consequences for the energy customer. By restricting suppliers to one standard tariff per payment method, the regulator will push all the tariff innovation into fixed term tariffs, the number of which will be unlimited. This could see the market flooded with additional, complex tariffs causing further confusion rather than a simplification. Forcing suppliers to publish all tariffs in a standard way could be misleading. Big suppliers can achieve low headline prices by adding tight conditions and onerous penalties to their tariffs which is something Co-operative Energy does not do and has been campaigning against since it entered the energy market in May of this year. It’s also a fact that the major suppliers make most of their profits from their standard tariffs. It’s not in their interests to cut their standard tariff prices. They’ll be happy languishing at the bottom of the standard tariff league table because they will concentrate all their advertising on their time-limited, special-offer, fixed term tariffs. These will mean the customer will have to shop around more frequently, not less. And we’re also concerned about what would happen to customers who are on other tariffs at the moment. What would the plan be to move them to this proposed one standard tariff per payment method? Is anyone going to ask the customers what they want? Who’s going to advise them on the best deal? These proposals on tariff simplification will only work if they are properly thought through and accompanied by two other vital reforms:

  • Prohibition of so-called “predatory pricing”, to prevent the major suppliers using the profits they earn from the majority of their customers to cross-subsidise loss-leading tariffs enjoyed by the minority of customers who are serial switchers.
  • Reforms to the wholesale markets. Despite being good news, this week’s voluntary move by S&SE does not go far enough.
Customers shouldn’t have to shop around repeatedly for their energy. They should be able to trust their supplier always to offer them a consistently competitive tariff.

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