LONDON (Reuters) - Energy regulator Ofgem has told the nation's biggest utilities that they must offer simpler and fairer tariffs so consumers can more easily compare prices.
The regulator said competition was being stifled by tariff complexity and a lack of transparency, and that it had found evidence that the 'big six' had raised prices in response to rising costs more quickly than they cut them when costs fell.
Ofgem said it would force these companies to auction off up to a fifth of the electricity they generate, to make room for new companies and boost competition. Firms risk facing a referral to the Competition Commission if they fail to reform, it added.
Britain's big six utilities are Scottish and Southern Energy (SSE.L), Centrica (CNA.L), Iberdrola's (IBE.MC) Scottish Power, RWE's npower (RWEG.DE), EDF Energy (EDF.PA) and E.ON UK (EONGn.DE), which recently sold its UK power networks to U.S. power firm PPL (PPL.N).
"Consumers have told us that energy suppliers' prices are too complicated. We are planning to sweep away this complexity so suppliers' prices are fully exposed to allow easy price comparisons," the regulator said in a statement.
Mike O'Connor, chief executive of Consumer Focus said consumers have less confidence in energy companies than in any other sector: "They feel that prices aren't fair, tariffs are too complex and that the market doesn't treat them well."
RBS analyst Iain Turner said he was expecting this kind of measure in the retail markets: "This is just the detail."
Christine McGourty, Director of Energy UK, said Britain has one of the most competitive energy markets in the world, with about 100,000 customers switching suppliers every week.
"But some people have never switched, so any appropriate measures to engage those customers better in Britain's competitive energy market will be welcome," she said.
Ofgem Chairman Lord Mogg said the companies had eight weeks in which to "engage constructively" with Ofgem's proposals. "If firms frustrate reforms, they risk ending up at the Competition Commission," he added.
Energy Secretary Chris Huhne welcomed the proposals and said the best possible deal for consumers meant "rough and tough competition".
"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," he said.
Phil Bentley, Managing Director of British Gas, which is owned by Centrica, said the company welcomed any proposals that further boost competition in the UK energy market.
"In particular, we welcome Ofgem's proposals to improve electricity market liquidity and transparency in the reporting of company returns," Bentley said.
Ofgem also announced an investigation into Scottish Power over a "significant" difference between the company's standard and direct debit tariffs and said it was exploring whether it needed to bring similar actions in the non domestic market.
Reporting by Adveith Nair, Daniel Fineren and Simon Falush; Editing by Will Waterman and Louise Heavens