Energy regulator to push for fairer fuel costs

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Electricity pylons
Ofgem want to make it easier for customers to shop around for electricity. Photo: Reuters

You can lead a horse to water, they say, but you can't make it drink.

In a way, that's the frustration Ofgem, the energy regulator has felt after its previous efforts to encourage customers to switch to cheaper tariffs for gas and electricity.

The problem has been bewildered horses - or customers. Energy companies have proffered hundreds of tariffs with myriad names and conditions. Consumer groups have tested whether customers can find the best rate available - with dismal results. Consumer group Which? found nine out of ten customers failed

Proposals published today by Ofgem will restrict each supplier to four "core" tariffs and a common way of describing standing charges and unit costs.

It will also make companies tell customers what the cheapest rate is - but they won't automatically be put on that rate, something the Prime Minister appeared to suggest earlier this week.

At the first glance these seem to be sensible proposals but the devil is, as always, in the detail. What is a "core" tariff? It's the first the companies have heard of the term and it appears to offer wiggle room.

We won't know for another week when Ofgem publishes the full consultation document but so far Ofgem says each customer will be presented with a maximum of four tariffs per fuel based on your meter type (standard or smart-meter) and payment type (direct debit, standard credit or pre-payment).

By my maths that's 48 total. That's still more than a handful.

Some companies think being able to offer more tariffs would be a good thing for customers. Beyond a core price for paying by direct debit, for example (which usually offers the biggest discount) or fixing the price for a year or more, there can be innovation - and cheaper prices - for using power or gas at times of low demand (overnight) or allowing a customer to pay more to choose electricity from a renewable source - even a local source.

Only four tariffs per fuel would limit this innovation.

Will it work? Even Ofgem doesn't seem sure. Ahead of a full rollout of the new rules next summer, it's to launch a pilot study to see whether the most vulnerable customers do actually switch when presented with a simplified way to find the best deal.

You could call it the 'horse and water' test.