Ofgem stops short of energy tariff ruling

Lit hobs glow from an electric cooker in Edinburgh, Scotland October 14, 2008.

LONDON (Reuters) - Energy regulator Ofgem stopped short of endorsing Prime Minister David Cameron's pledge to force suppliers to give their cheapest tariff to consumers, in measures to simplify domestic gas and electricity bills on Friday.

The Ofgem proposals follow a review of the household energy market that identified tariff complexity, poor supplier behaviour and a lack of transparency and competition in a market dominated by six gas and electricity utilities.

Cameron took the sector by surprise on Wednesday when he said that Britain would introduce laws to make energy suppliers give customers the lowest tariffs amid frustration over rising consumer bills.

Energy Minister John Hayes later backtracked on Cameron's pledge and said the government was only considering introducing such a law.

Ofgem's decision to omit such measures likely reflects the risks and difficulties of implementation.

The prime minister's announcement raised fears that it would actually disadvantage consumers as suppliers would react by simply withdrawing their lowest tariffs from the market.

Instead, Ofgem said it was consulting on banning complex multi-tier tariffs, making all tariffs show a standing charge and single unit price, and limiting the number of tariffs each supplier was allowed to offer.

The proposals would also force suppliers to print their cheapest tariff on consumers' bills, ensure fair treatment under threat of fines and the regulator would take steps to promote collective switching.

The chairman of the energy and climate change select committee, Tim Yeo, warned that investors may take their money elsewhere if last-minute attempts to write Cameron's pledge into a forthcoming Energy Bill delay its November publication date.

At stake is 110 billion pounds of investment government says is needed to decarbonise Britain's energy network and which the forthcoming Electricity Market Reform Bill aims to attract.

"The later the Bill reaches the statute books, the later investment in urgently-needed new electricity-generating capacity, and in particular in low-carbon generation, will come forward," Yeo told Davey.

CLARITY

Energy UK, Britain's energy industry association, backed Ofgem's proposals for setting the record straight after uncertainty following Cameron's remarks.

"As Ofgem's proposals and the Energy Bill are debated, clarity of plans and certainty of proposals will be essential, as well as open consultation and decision-making that is grounded in facts and evidence," Angela Knight, Energy UK's chief executive said.

"Investors will require confidence in our policy and regulations if we are to attract investment in energy that is needed in the next decade, to boost economic growth and add to the 600,000 already employed in the sector," Knight added.

Others interpreted Ofgem's stance as edging closer to the proposal made by the Prime Minister.

"The default to cheapest tariffs at the end of fixed-term contracts even goes some way to fulfilling the Prime Minister's off-the-cuff pledge to ensure customers get the lowest tariffs," Liberium Capital said in a research note.

Britain's six dominant energy suppliers, Centrica, Germany's RWE, and E.ON, Scottish Power, SSE and France's EDF, will eventually be obliged to comply with the regulator's proposals.

(Additional reporting by Susana Twidale and Tim Castle; editing by Mike Nesbit)