Ofgem’s Retail Market Reform proposals illustrate just how difficult it is to get this right.
The regulator says customers will decide how they want to pay and then be offered just four tariffs (well, four electricity, four gas, discounts for dual fuel and other tariffs if they are part of a collective switching scheme).
That doesn’t necessarily do the job. Someone who initially wants to pay by cheque would probably get a better tariff if they switched to direct debit, but that may not be obvious. Restricting tariff offers won’t help them get the best deal.
There are other questions. This week we highlight the Isle of Wight’s Ecoisland scheme (see page 19), part of which gives consumers a bonus if they switch supplier to SSE (which can then be donated to the work on the island). It’s not collective switching. How would it be handled?
Then there is demand response – something to which the government has belatedly woken up. Will there be space in the handful of tariffs for different options or are they, like collective switching tariffs, additional? That question could arise well before the advent of smart meters – when we positively hope for the number and range of tariff options to grow hugely. (Even now, to be outlandish, if an energy company has overbought on gas for the winter, might it be better business for all concerned if it offered a cheap six-month deal to customers, rather than trying to trade the surplus in an oversupplied market? Why not allow a winter sale?)
Some of these questions may be answered in the full consultation, due out today. But the point that should not be forgotten is that the industry is complex, and it has a lot of complexity to manage. Just last week, Ofgem set out new proposals for managing the volatility of network charges, which make up nearly a quarter of customer bills (see story, page 4), and there are so many more issues involved in sourcing energy and getting it to the consumer that we barely manage to cover it all in a weekly magazine.
Politicians are too ready to give the impression that a simple switch (or a simple tariff) can give customers low energy bills for ever. And they are too ready to suggest that switching supplier is the same as engaging with the energy market.
What they should be saying is that there is no secret energy source out there that will halve prices, that the cost of energy is rising and will continue to do so (and therefore energy efficiency is vital), and that if customers want to help keep costs down for all of us, they should be alert to tariffs that help manage the complicated business of supply, even if it means they have to take the trouble to understand them.
Producing and transporting energy is not simple – nor is it cheap. Those who say otherwise are deluding themselves or lying.
Janet Wood
This article first appeared in Utility Week’s print edition of 26th October 2012.
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