UK to force energy firms to offer best deals

LONDON Tue Nov 20, 2012 7:53pm GMT

The sun rises behind electricity pylons near Chester, northern England October 24, 2011. REUTERS/Phil Noble

The sun rises behind electricity pylons near Chester, northern England October 24, 2011.

Credit: Reuters/Phil Noble

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LONDON (Reuters) - Britain plans to force energy suppliers to offer only a limited number of gas and electricity tariffs, aiming to ensure consumers get the best deal in the government's latest attempt to ease pressure on living standards.

The government said energy suppliers will have to make sure customers are on the best-value tariff and will have to offer just one fixed and one variable-rate option, as well as scrapping "dual fuel" discounts for customers receiving both electricity and gas from one supplier, or based on payment methods.

The plans come after Prime Minister David Cameron last month promised to legislate so energy companies have to give the lowest tariff to their customers, a vow which was criticised at the time by his political opponents as being undeliverable.

"Bill payers will no longer face the impossible choice between hundreds of tariffs," said Energy Secretary Edward Davey. "Each customer will have a maximum of four tariffs for gas or electricity per supplier to consider."

For Cameron the issue has emerged as a political priority.

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, and 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 has already been encouraging consumers to frequently switch 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 would come into force by summer 2014 and are subject to a consultation period.

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

But some 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 ... they're not competing on the quality of the product because ultimately they're providing a commodity," RBC analyst John Musk said.

MARGINALLY PROFITABLE

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.

Britain's six largest energy suppliers, EDF Energy, Centrica, SSE, Scottish Power, E.ON and RWE npower, currently provide varying numbers of tariffs (see table below).

Offering a reduced number of tariffs is unlikely to bite into the profitability of the energy suppliers, which in addition to supply are also engaged in power generation and services, as the firms will likely just raise the lowest tariffs to meet ensure they maintain their margins, said analysts.

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.

Britain's energy regulator Ofgem welcomed Davey's statement. "These proposals ... will put an end to consumers being bamboozled by complex tariffs and deliver choice that consumers easily understand."

Britain's industry lobby the CBI said the government was right to focus on making energy bills cheaper, adding investors will also need clarity on how forthcoming reforms to the electricity sector will change the country's energy mix and hasten a move to low-carbon forms of generation. Number of tariffs offered by UK's biggest energy suppliers Centrica 6 EDF Energy 2 E.ON x RWE npower 8 Scottish Power 6

SSE 3

(Additional reporting by John McGarrity, Isla Binnie and Mohammed Abbas; Editing by Jason Neely and David Holmes)

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