Government to force energy firms to reduce number of tariffs

LONDON Tue Nov 20, 2012 12:51pm GMT

A gas cooker is seen in Boroughbridge, northern England November 13, 2012. REUTERS/Nigel Roddis

A gas cooker is seen in Boroughbridge, northern England November 13, 2012.

Credit: Reuters/Nigel Roddis

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LONDON (Reuters) - The government plans to limit energy suppliers to a maximum of four tariffs on gas or electricity to improve transparency and help customers find the cheapest deal in its latest attempt to tackle rising prices for consumers.

The government announced on Tuesday that energy suppliers will have to offer customers their best value tariffs, including one fixed and variable rate option, and scrap discounts for customers receiving both electricity and gas from one supplier or based on payment methods.

"Bill payers will no longer face the impossible choice between hundreds of tariffs; each customer will have a maximum of four tariffs for gas or electricity per supplier to consider," said Energy Secretary Edward Davey, adding that all suppliers have to make these changes by the summer 2014.

Britain's six largest energy suppliers are EDF Energy (EDF.PA), Centrica (CNA.L), SSE (SSE.L), Scottish Power (IBE.MC), E.ON (EONGn.DE) and RWE npower (RWEG.DE), who currently provide varying numbers of tariffs.

Davey clarified remarks initially made by Prime Minister David Cameron one month ago which caused confusion within the energy industry and the government, as well.

Britons see climbing energy prices as the biggest threat to their standard of living over the coming year, according to a YouGov survey published in October. UK inflation is already set to rise further this year due to recent gas and electricity price hikes by energy suppliers.

"You have to keep shopping around but at the moment they all seem to be putting them up. There's not a lot of difference between them," said Suzanne Shawcross, a 53-year old London resident.

The government is encouraging consumers to switch their energy supplier to secure the cheapest tariffs, but many say the process is tiring and confusing.

"All this switching is not as straightforward as they say. It's a terrible fiddle to go online and get figures to compare," said 76-year old Jennifer Pulham, a retired teacher.

The new rules announced on Tuesday are subject to a consultation period.

COMPETITION

The government says its proposals strike the right balance between engaging consumers in the energy market and maintaining incentives for energy suppliers to compete.

"Our objective here has been to work to help hard-working families who often struggle to pay their energy bills and that's what our proposals are designed to do," said a spokesman for Prime Minister Cameron.

But experts have voiced concerns that reducing the amount of tariffs will hinder rather than help competition and prevent consumers from shopping around.

"Fewer tariffs to choose from means the companies have got less to compete on because they're not competing on the quality of the product because ultimately they're providing a commodity," RBC analyst John Musk said.

At the same time, energy bills will continue to rise because underlying factors such as costs for social and environmental programmes and more expensive wholesale products will be passed on to consumer bills.

"These costs all have to be passed on (...) and they are accounting for at least half, if not more than half, of recent tariff increases," said UBS analyst Stephen Hunt.

IMPACT ON SUPPLIERS

Offering a reduced number of tariffs is unlikely to bite into the balance sheets of suppliers as the business of supplying energy is only marginally profitable, analysts said.

"If they are forced to switch some customers to lower tariffs that's not going to mean lower profitability for them in general," RBC analyst John Musk said.

"I don't think these companies are making a lot of money on supply anyway."

Energy suppliers said they were supportive of efforts to create a fairer and simpler tariff regime.

"However, it is important to recognise that in the UK, we do have some of the cheapest energy prices across Europe and costs are also driven by factors outside of our control," a spokesman for RWE npower said.

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