‘Simplified’ energy tariffs still too confusing

A new Which? energy investigation has revealed that while Ofgem’s new rules for standardised tariffs are a step in the right direction, the majority of people still find them confusing as two thirds fail to identify the cheapest deal.

For our latest energy tariff test we challenged people to spot the cheapest deal using the standard tariffs of the big six energy suppliers (British Gas, EDF, E.ON, Npower, Scottish Power and SSE).

We found that only a third (35%) of people picked the cheapest deal when tariffs were presented in line with Ofgem’s new Retail Market Review (RMR) structure, made up of a unit rate and standing charge.  Of the rest, three in ten (31%) picked the wrong tariff and a third (34%) either didn’t think it was possible to calculate or didn’t know how to.  Four in ten (41%) used an aid to do their calculations such as a calculator or spreadsheet, yet only 50% of these people got it right.

When we ran a similar test in 2012 only 8% could pick the cheapest deal using the old-style energy tariffs, so while the RMR structure is an improvement our latest results show that the majority of people are still baffled.

Alongside the RMR structure, Ofgem is bringing in a new system of presenting energy tariffs called the Tariff Comparison Rate (TCR). This displays tariffs based on what a medium energy user would pay for their gas and electricity only, for low and high users it’s intended to prompt the hunt for cheaper deals.

Our research reveals that only 8% found the TCR display easy to understand.  In our test when people were asked to pick the cheapest deal for a very low-energy user nearly two thirds (64%) chose the supplier with the lowest TCR figure.  However this would not have provided the cheapest deal for a very low user as there is no way of working that out using the TCR.

We are concerned that as TCRs are likely to appear in advertising and on comparison sites, some consumers could end up worse off by incorrectly using them to compare and decide on a new tariff.

Which? has launched the Fix the Big Six campaign, calling on the Government, Ofgem, competition authorities  and the energy companies to drive forward radical reforms to fix the broken market.  We want to see an energy market people can trust, where they have the power to spot the best deal for them using simple, easy to compare pricing.

 

Which? executive director Richard Lloyd said:

“In spite of Ofgem’s tariff reforms to simplify the market, consumers are still failing to spot the cheapest deal because energy pricing remains too complicated.

“More radical changes are needed to fix the broken energy market. That’s why our Fix the Big Six campaign is also calling for a full competition inquiry, so that hard-pressed consumers can be confident that the market works well for them as well as shareholders, and that the price they pay is fair.”

Eight in ten (81%) picked the cheapest deal when they were presented with the tariffs in the simple pricing format of a unit rate and no standing charge that Which? has championed. Less than one in ten (8%) picked the wrong tariff and 10% didn’t think it was possible to calculate or didn’t know how to.

Notes to editors:

1.    Methodology: In January 2014, we ran an online survey of 1,515 UK energy bill-paying adults aged 18 and over, based on three different energy-tariff scenarios. The sample was split so that each respondent only took the test for one of the three scenarios.  For the RMR scenario, we asked 505 people to compare six deals from the big six energy suppliers’ standard tariffs (as presented on their websites) in the standing charge plus unit rate format – see graphic. The details were correct as of 3rd January 2014 for a customer based in the Midlands and paying by direct debit.  The Tariff Comparison Rate scenario was calculated from these tariffs at medium use (3,200kWh of electricity a year) and the simple unit rates were hypothetical.

2.    We are calling for six fixes to the energy market, as part of our Fix the Big Six campaign:

FIX NO.1. INCREASE COMPETITION

Launch a full competition inquiry into the energy market in March 2014.

·  The OFT, Ofgem and the Competition & Markets Authority should refer the energy market for a full competition investigation looking at whether competition is working for consumers and how it could be increased it through changes to energy company structures to deliver trust, transparency and fair prices.

FIX NO.2. TRANSPARENT TRADING

The big six energy companies’ supply and generation businesses should be separated.

·  Supply and generation businesses should be ring fenced with distinct licence holders.

·  Increase the amount of trading in the wholesale energy market on exchanges to increase liquidity in the market and transparency.

FIX NO.3. PEOPLE POWER

Simple pricing and swifter switching must be introduced to help people get the best deals.

·  Simple, easy to compare pricing should be introduced to help people spot the best deal for them.

·  7 day switching must be introduced as soon as possible.

FIX NO.4. COST CONTROL

The Government must control costs added to consumers’ bills.

·  The Carbon Floor Price should be frozen or cut at the 2014 Budget.

·  The Government should increase scrutiny of the costs added to consumers bills by programmes such as the Energy Company Obligation and the smart-meter roll-out.

·  Investment in low carbon generation must be secured at the lowest possible cost with competition introduced from day one.

FIX NO.5. CUSTOMER TRUST

Energy companies must end practices that unfairly increase costs and damage customer trust.

·  Energy companies must make sure that charges for not paying by direct debit are cost reflective and should not hold onto high levels of customers’ cash, when they’re in credit.

·  Energy companies must improve the poor levels of customer satisfaction by improving complaints handling and levels of service.

FIX NO.6. WARMER HOMES

The Government should overhaul the Green Deal to make it a fairer deal for consumers.

·  The review of the Green Deal’s first year must identify why its appeal is low and set out recommendations to tackle this.

·  Companies should not be allowed to charge large repayment fees if people want to pay off a Green Deal loan early.

3.    Since January all energy companies in England, Scotland and Wales have had to stick to new rules on how they structure energy tariffs. Ofgem’s Retail Market Review (RMR) stipulates that suppliers can only offer a maximum of four core tariffs for gas and four core tariffs for electricity, although there are actually more deals to compare depending on your payment method.  Tariffs must be made up of a unit rate and standing charge, although the latter can be set at zero.

 

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