Ofgem plan could save Cameron's bacon over energy policy

Ofgem, the regulator of the energy industry, has released its plans to force suppliers to inform vulnerable customers about the cheapest gas and electricity tariffs they have available.

The timing of the regulators new plan could help David Cameron extract the government from the criticism it has received after his intervention in parliament on Wednesday when he said the government will force energy firms to offer the cheapest tariff to consumers.

The regulator has stopped short of saying that it will follow the Prime Minister's promise but it has promised to force the "big six" suppliers, who hold a 98 per cent share of the energy market, to reduce the number of tariffs they offer.

Ofgem also wants to make sure energy suppliers are firced to put their cheapest tariffs on the bill. 

The regulator believes that by reducing the number of tariffs each supplier offers it will encourage consumers to switch. The proportion of suppliers switching has fallen from 20 per cent in 2008 to 15 per cent.

The government, under pressure after being accused of making up its energy policy as it goes along, has defended its comments and says that the two proposals are complimentary.

A government spokeswoman refused to say if the Prime Minster was aware of Ofgem's proposals when he made his announcement in parliament on Wednesday.

Ofgem wants each of the “big six” energy companies to present the cheapest tariffs they have on bills sent out to customers and for customers to be moved to the cheapest option by default when they come to the end of a fixed-term contract.

Chief Executive of Ofgem, Alistair Buchanan, said: “Our plans will put an end to consumers being confused by complex tariffs and will usher in a simpler, clearer, fairer and more competitive energy market for all consumers.”

Ofgem is calling for a ban on complex multi-tier tariffs and for uncompetitive tariffs to be scrapped. It wants all tariffs to be priced with a standing charge and one unit rate and there to be a limit on the number of core tariffs each supplier is allowed to offer of four per fuel.

The regulator is also calling for a tariff comparison rate across the sector to compare tariffs on a “like-for-like” basis and for new personalized information to help consumers find the best deal.

In its three-point plan Ofgem is also looking for new standards of conduct from energy suppliers to be backed up by enforceable fines and for ways to promote more collective switching to be considered by the regulator.

Angela Knight, the chief executive of Energy UK said: : "As far as the Prime Minister's proposals are concerned, we haven't seen them.

“As far as Ofgem are concerned, what they are saying to us is (you should have) a very small handful of tariffs, you have got to be very clear on them and tell your customers about them and give the customer the choice.

"We need to have a set of proposals that are in the best interests of our customers and I think the customers do want choice. I do believe that choice is the right thing. I don't think we should say to the customer 'You must have this or that'.”

Mr Buchanan added: “I am glad to say suppliers have already responded with some initiatives, but these don’t go far enough.”

Earlier this week, the Prime Minister, David Cameron said during Prime Minister’s Questions that he would force energy suppliers to put customers on the cheapest available tariff. He said he would make this happen via legislation in the upcoming Energy Bill.

However, consumer groups said that this may be a mistake and have a negative impact on competition.

Labour attacked the Prime Minister, saying the government’s energy policy was a “shambles.”

Caroline Flint, shadow energy and climate change secretary, said: "It is deeply disappointing that after spending nearly two years putting these proposals together Ofgem has once again ducked the opportunity to get tough with the energy giants.

“We need to open up the books of the energy companies, but these reforms do nothing to improve the transparency of the prices these firms charge their customers.”

The Energy Minister was called to parliamentary questions to answer an urgent question on the subject by his Labour counterpart, Caroline Flint. Mr Hayes appeared to back down by saying that the government was only considering such action.

Ofgem says it will extend its consultations with the industry and consumers and hopes the proposals could be enforced from next summer, though Ofgem said that there is nothing to stop the energy firm from implementing the changes immediately.

Mr Buchanan said:"Ofgem is determined to press forward with proposals to deliver for consumers the most far-reaching shake-up of the retail energy market since competition was introduced."

Read more: A step-by-step guide on how to find the cheapest energy deals