Ofgem starts energy shake-up but much more is needed

by Ed Bowsher on 30 September 2010  |  5 comments
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I said a week ago that Ofgem should shake up the energy market. Today it's a welcome first step.

It’s a good day for all consumers. One of the energy industry’s biggest rip-offs is probably on the way out.

At the moment, energy companies can increase the price you pay for you gas and electricity and not tell you for 65 days. Admittedly, once the customers have been notified, they have 20 days to switch to another supplier, but it’s still a dodgy trick. 20 days isn’t very long and it seems very unjust that a price rise can happen without you being told for more than two months afterwards.

Today Ofgem has made a welcome new proposal. It thinks that customers should always get at least 30 days’ notice before a price rise goes through. I think that’s much better. If the energy companies reject these proposals, Ofgem can refer the matter to the Competition Commission who could drive the plan through.

I do hope that the energy companies don’t waste time and implement Ofgem’s proposal immediately.

It’s also good that Ofgem has successfully pushed all suppliers to give customers an Annual Energy Statement. This gives customers more detailed information on how much their energy will cost them in the next year.

However, as I said last week, there are several more things Ofgem should do. You can read all four of my ideas in last week’s blog but today I’m going to reiterate the one I feel most strongly about.

I believe that tariff discounts should be fully applied within three months of a deal commencing.

To explain, let’s say that you’re quoted a cheap new tariff of £1200 a year (£300 a quarter). This new tariff includes a ‘discount’ of £120. So the non-discounted price is £1320 a year or £330 a quarter.

When you get your first quarterly bill you’re charged £330 because the ‘discount’ won’t be paid to you until the end of the one-year period. In other words, it’s not a discount at all, it’s a cashback offer. And if you want to switch tariff before the year is up, you’ll never get the £120 discount. So you won’t have paid the tariff  you were quoted when you originally took out the deal.

This is a clever but dodgy trick that makes extra cash for the energy companies. Ofgem should stamp it out now.

Check out lovemoney.com’s energy service where it’s easy to find the cheapest tariff for your needs