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 designed to make it simpler, clearer and fairer for customers.
In a series of three blogs, we’re explaining what the reforms are and how they will affect customers. Last time we looked at the “simpler” part, today we’ll focus on what Ofgem is doing to make the market “clearer”.
“Clearer”
As well as simplifying the actual products on offer, Ofgem has set out to ensure that information about those products is presented to customers as clearly as possible, so that they can make better informed decisions.
In practical terms, this will lead to some fairly noticeable changes.
One of the reasons energy bills can look complicated is because of the large amount of information suppliers are legally required to provide, however through RMR, Ofgem will put further guidance in place to help make sure suppliers get this information across in an easy to understand way.
And there’s more good news for customers in that your energy supplier will now tell you, on your bill, if they can offer you a cheaper deal. That should lead to more people switching to the best tariff for them.
We began that process last year with the introduction of our annual energy reviews, but making sure this information is on every bill will help give customers additional peace of mind.
As well as seeking to help customers know they’re on the best deal with their current supplier, Ofgem wants to make it easier for customers to compare products across the market.
Under RMR, energy suppliers will provide a Tariff Information Label (TIL) – a short and clear summary of every tariff and payment method they offer to make it clear to customers exactly what they would be signing up to (and to help identify where there are optional extras included with the tariff).
This is a lot like the Key Features document that comes with insurance policies and will help customers choose between two similar tariffs.
But with different suppliers sometimes pricing their products in different ways, it is not always as straightforward as it should be to compare one with another. For example, a supplier might choose to have a lower standing charge and higher unit rate, or vice versa, and may even vary this ratio between its own tariffs.
SSE has a very simple structure of a £100 per year, per fuel standing charge plus a unit rate, but this can vary from supplier to supplier, making comparisons tricky. So Ofgem is introducing a uniform Tariff Comparison Rate (TCR), which all suppliers will have to include in all their communications and which will be measured in the same way across all products.
The idea is to provide a standard metric so that customers can compare products that are structured differently to get an idea of which provides the best value. It’s a similar idea to the Annual Percentage Rate (APR) designed to help people compare mortgages more easily.
The TCR is based on the amount of gas and electricity used by the average customer, so unfortunately it won’t necessarily show customers exactly what the cost of a particular tariff would be for their individual circumstances. However, it will provide a useful indicative guide to how deals compare.
This will all build on work we have already done through our customer forums to simplify our bills and present information to customers in the way they want it. Although there are different views out there on exactly the best way to make prices more comparable, the changes Ofgem is making through RMR are certainly a step in the right direction.