UPDATE 2-UK to force energy firms to offer best deals

Tue Nov 20, 2012 1:08pm EST

Related Topics

* Suppliers to offer one fixed, one variable rate tariff
    * To scrap discounts for dual fuel, paying method
    * Experts concerned limiting tariffs impedes competition


    By Karolin Schaps and Sarah Young
    LONDON, Nov 20 (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 a nd 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
[the suppliers] 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
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