Ofgem today unveiled sweeping proposals to introduce fairer energy prices and “break the stranglehold the Big Six have over the electricity market”.
The regulator plans to make the Big Six – British Gas, EDF, E.ON, npower, Scottish Power and Scottish & Southern Electricity – auction off 20% of their output to make way for new entrants to the sector.
And Ofgem would fine companies that do not comply with the new rules.
Chief Executive Alistair Buchanan said that “energy companies have failed to play it straight with consumers”.
“Consumers have told us that energy suppliers’ prices are too complicated. It is no surprise that they are bamboozled when tariff complexity has increased from 180 to more than 300 since 2008. That is why we are planning to sweep away this complexity so suppliers’ prices are fully exposed to allow easy price comparisons.”
He added that the fines were being introduced to bring “a tough approach to enforcement”.
“Consumers must have confidence that energy companies are playing fair at a time when they are being asked to foot the £200bn bill to pay for the investment Britain needs to ensure secure and sustainable energy supplies.”
Ofgem proposes to address ‘confusion in the market’ by restricting the number of tariffs for standard evergreen products from each supplier to just one per payment method in relation to domestic customers.
It also wants to standardise the format of these tariffs across suppliers, with companies allowed to compete on just a single “per unit” price. Consumers would then be able to tell at a glance whether they can save money by switching supplier or moving to a new deal.
The regulator also wants to ban automatic rollovers to new fixed-term products.
On breaking the power of the Big Six, Ofgem wants to see the creation of a regular Mandatory Auction to facilitate the sale of between 10% and 20% of those companies’ power generation, and has given the firms until June 1 to enter into discussions to set up this framework or propose viable alternatives.
Ofgem’s Chairman Lord Mogg said the reforms “should force open the electricity and gas markets to ensure the market works effectively for consumers”.
He added: “This is a holistic package of changes. We will also discuss with government if we believe our consumer protection powers need reinforcement.”
Today Ofgem also announced a new investigation into Scottish Power’s pricing regime. This is in addition to an ongoing investigation into how British Gas, EDF Energy and npower handle consumers’ complaints.
The regulator is also continuing with probes into misselling by EDF Energy, npower, Scottish Power, and SSE.
This morning, Energy Secretary Chris Huhne responded the Ofgem’s package by saying that “consumers deserve the best possible deal, which means rough and tough competition in the marketplace”.
“Making energy tariffs easier to understand and tackling poor practices will help consumers,” he added. “And opening up the wholesale market to new entrants will encourage competition and complement our electricity market reforms to ensure consumers are getting the best deal.”