Power giants 'fail to play it straight' on prices

A RADICAL overhaul of energy charges has been laid out by regulator Ofgem in an effort to stamp out "bamboozling" high prices charged by the six main power firms.

Ofgem claimed the "Big Six," which includes Scottish & Southern Energy and ScottishPower, have all hiked bills in response to rising costs faster than they reduced them when their expenses fell. All the companies have increased their tariffs in recent months, stretching consumers' finances at a time when money is already tight in the wake of the recession.

The watchdog warned that it would refer the companies to the Competition Commission - and potentially turn to the government for help in reinforcing consumer protection powers - if they failed to simplify their pricing structures.

Firms would also be required to sell off up to 20 per cent of their energy through an auction to allow smaller competitors to enter the market.

"Energy companies have failed to play it straight with consumers and so Ofgem is proposing to break the stranglehold the Big Six have over the electricity market by making them auction up to 20 per cent of their generation output," said Ofgem chief executive Alistair Buchanan. "This would increase price transparency and make it easier for new players to enter the retail market."

The number of different tariffs available to consumers now totals more than 300 - an increase of two-thirds over the past three years.

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"Consumers have told us that energy suppliers' prices are too complicated," added Mr Buchanan. "It is no surprise that they are bamboozled when tariff complexity has increased from 180 to more than 300 since 2008. That is why we are planning to sweep away this complexity so suppliers' prices are fully exposed to allow easy price comparisons."

Under the new rules, firms will only be allowed to offer one standard "evergreen" - or ongoing - product per payment type of prepayment, standard credit (cash or cheque) and direct debit. The choice of fixed-term offers will be unlimited, although companies will be banned from automatically renewing customers' contracts when their deal comes to an end.

Consumer groups yesterday welcomed the review, which also unveiled plans by Ofgem to forensically examine energy companies' accounts.

"We strongly support Ofgem's announcement," said Lucy McTernan, chief executive of Citizens Advice Scotland, pointing to figures showing that one third of Scottish households currently live in fuel poverty. " These high charges affect everyone, but they have a disproportionate impact on those who are on the lowest incomes."

But consumer watchdog Which? warned that Ofgem needs to stick by its threats to ensure the energy companies take action.The regulator admitted yesterday described the response to its 2008 report as "disappointingly poor".

"This isn't the first Ofgem investigation to show that the energy market is failing consumers," said Louise Hanson, head of advocacy at Which?. "Unless the regulator takes decisive steps to clean up the sector, it won't be the last".

Price promise

• Restrict the number of tariffs for standard products from each supplier to just one-per-payment method for domestic customers.

• Standardise the format of tariffs across suppliers? to allow consumers to calculate whether they can save money by switching supplier.

• Companies can continue to offer an unrestricted number of fixed-term products in a bid to encourage innovation and choice.

• Sell between 10 per cent and 20 per cent of the Big Six's power generation into the market through an auction.

• Licence conditions tightened to give suppliers less "wriggle room" in interpreting these conditions.