Most people will have heard something in the last few weeks about Ofgem’s Retail Market Review (RMR) – a series of reforms to the UK energy market which will make it simpler, clearer and fairer for customers.
Ofgem has been carrying out its review for more than two years and RMR has been billed the most significant set of reforms to the energy retail market since privatisation.
So what is being changed through RMR and, at the end of the day, what difference will it make to you?
In a series of three blogs, we’ll highlight some of the most significant changes likely to affect customers in the three key areas of “simpler”, “clearer” and “fairer”.
“Simpler”
In the past, as competition grew energy companies did all they could to design innovative products tailored to the needs of specific customers. This had its benefits, but the market became over-complicated and it was not always easy for customers to know very easily which was the right deal for them.
Number of tariffs
Ofgem is attempting to simplify things by limiting the number of core tariffs each supplier is allowed to offer to just four for any given meter type and payment method. When we launched our Building Trust campaign in 2011, we reduced the number of tariffs we offered from over 60 to just three and it’s great to see this approach being mandated across all suppliers.
Type of tariffs
Ofgem has also identified certain types of tariffs which can no longer be sold. The most prominent of these is the tracker tariff, through which most suppliers offered a fixed discount against their standard variable prices in return for customers committing to stay with them for a defined period. It’s the same concept as a tracker mortgage.
While some customers enjoyed the benefits of tracker tariffs, Ofgem identified a significant group who were confused that the prices on their fixed term tariff could increase. It is therefore banning tracker tariffs unless they are linked to an external index, such as the Bank of England’s base rate.
Structure of tariffs
In the past, tariffs have recovered the fixed cost elements of a customer’s bill (such as metering, IT and customer service) either through a fixed standing charge or through a two-tier unit rate ‘No Standing Charge’ (NSC) tariff. With NSC tariffs, the first block of units used was more expensive than subsequent units, and the difference between the two unit rates recovered the fixed costs.
Feedback from customers and consumer groups was that this structure could be confusing, so it will no longer be allowed. SSE supports this move as being in the best interests of customers and on 15 November 2013 we completed the process we started last year of moving all customers onto a simple, fixed standing charge of £100 a year per fuel plus a unit rate for the energy they use.
Type of discounts
Suppliers will no longer be able to offer certain types of discounts, including prompt payment discounts, loyalty-based discounts and percentage-based discounts.
We still offer substantial discounts to customers who pay by Direct Debit and receive paperless bills, however, which reflect the lower cost to SSE resulting from customers making those choices.
The effect of all of this is to make it easier for customers to navigate the market and find the best deal for their circumstances.
While there will always be winners and losers in any structural reform, we think this is generally the right thing to do for customers and should lead to increased engagement and competition in the market – which ultimately has to be a good thing for customers.