New energy plans could cost consumers £55 million

New Which? research shows that OFGEM’s reform proposals could see consumers paying too much for their energy.

The latest Which? analysis reveals OFGEM’s current proposals to reform energy tariffs could mean more than 3.4 million households end up paying over the odds for their energy as they struggle to identify the cheapest energy tariffs.  This could see consumers collectively paying up to £55 million more than they need to on their bills.

The aim of OFGEM’s proposed Tariff Comparison Rate (TCR) is to simplify energy tariffs and allow consumers to compare the price of different tariffs across the market.  Under these new complex proposals consumers will be advised on their best deal based on medium usage of both gas and electricity.  Only a quarter (26%) use this level of energy, resulting in three quarters of people being advised on a deal not based on their actual usage.

Our research also shows that with the TCR around 500,000 low energy users, who tend to be on the lowest incomes, could be mis-directed to the wrong tariff.

Which? believes that the new proposals don’t go far enough to help consumers navigate the maze of complicated energy tariffs.  We want to see the introduction of a single unit price for energy tariffs, in the same way petrol prices are displayed, to enable consumers to easily compare prices and find the best deal for them.

Richard Lloyd, executive director at Which? said:

“Rising energy bills remain one of consumers’ top financial concerns yet six in 10 of us have never switched supplier as people are left baffled by the vast array of complicated tariffs.

“These current proposals are far too complicated and will fail to achieve their aim of making it easier for people to find the best deal, with three quarters of people being asked to compare prices that are not based on their energy usage.

“The Government should introduce single unit prices for each energy tariff so people can easily see the best deal for them at a glance. Only then will people have the confidence to switch, injecting much needed competition into the broken energy market.”

Notes to Editors

Which? is launching a digital campaign and asking consumers to come forward and pledge their support for single unit prices:

1. The Tariff Comparison Rate works like an APR, providing an illustrative cost for an energy tariff based on medium gas / electricity usage.  Only one in four GB households are medium users for both gas and electricity.  If a consumer’s energy usage doesn’t exactly match this TCRfigure then there is the potential for people to choose a tariff which isn’t their cheapest option.

To calculate how many households this could affect we calculated TCR rates for every single tariff currently available at low, medium and high consumption points.  For each usage point, we calculated exactly which tariff would be the cheapest and also which tariff the TCR would indicate was the cheapest.  By calculating the difference in cost between these two tariffs, we estimated how many households could make a mistake if they simply chose the tariff suggested by TCR.

Using this method we estimate that 3.43 million households could make a mistake giving a combined value of £55.4 million.  These figures are correct as of14 April 2013.

2.  Of the 3.43 million people we estimated could be misdirected to the wrong tariff if they relied on the TCR, 498,752 would be low users of both gas and electricity.

3.  Previous Which? research found that when we asked people to spot the cheapest energy deal from a range of standard tariffs, only one in 10 could do so.  When presented as a single unit price this number increased to nine out of 10.

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