Energy News

Energy bills are ‘unfair to some’ says Ofgem

Tuesday 7 October, 2008

Energy providers must stop charging different rates to customers that pay by direct debit or pre-payment meters, Ofgem said yesterday.

Energy regulator Ofgem said that it was “particularly concerned” that 4.3 million customers without a gas supply do not have access to the most competitive deals, offered exclusively to dual fuel customers.

Ofgem warned the industry to “end practices that are failing some customers, and to deliver the full benefits of competition to the entire market”.

The result of a seven-month review into competition in the energy markets, which was launched in February when the “big six” providers all imposed price hikes at the same time, found no evidence of price fixing, saying that the market “worked well” for most people.

While it accepted that competition could not prevent rising coal and oil prices from pushing up bills, it did say that suppliers should do more to ensure that all customers could access the best tariffs.

More than half of the fuel poor currently pay for their gas and electricity by standard credit - cash or cheque each quarter - which costs them around £80 a year more than those able to pay by direct debit.

Equally, the average annual bill for those using a pre-payment meter - which 37 per cent of people in social housing currently use for at least one of their fuels - was £118 higher than for those paying by direct debit.

As well as calling for an end to disparities between payment types and new requirements to provide information to help consumers to get the best deal, Ofgem also proposed tougher rules on doorstep selling and more transparency in financial reporting.

Alistair Buchanan, Ofgem chief executive, said: “These are hard times and we are taking a hard line on behalf of disadvantaged consumers. We accept that global influences are pushing up costs but the suppliers must change their behaviour and cement consumer confidence. If they fail to satisfy our requirements voluntarily then we can move to a Competition Commission reference.

“Initial findings from our energy market probe give us grounds to demand that companies end practices that hinder customers, especially the vulnerable, from getting the best deal. But we have found no evidence of a cartel,” he concluded.

The number of people in fuel poverty - those having to spend more than 10% of their income on fuel - rose to 3.5 million, up from 2.5 million in 2005, according to Government figures released last week.

Gordon Lishman, director general of Age Concern, said: “Ofgem’s proposals to improve the market are welcome, particularly if these lead to the banning of price differences for pre-payment customers and those that pay by cash or cheque. However, much wider reforms are needed. It is particularly vital that social tariffs are made fit for purpose, and are made mandatory through legislation, so that the poorest consumers get the cheapest energy rates.”

Chris Eagle, EnergyChoices.co.uk financial director added: “With the ongoing credit crunch and further energy price rises since February, it’s no wonder that the number of homes suffering fuel poverty has increased.

“But it’s not just those on low incomes that are feeling the pinch. Even if you’re already on a duel fuel tariff and are paying by direct debit you could still save on your bills by switching to a new provider,” he advised.