Ofgem, the energy regulator, vowed to clamp down on the big-six suppliers yesterday by dismantling the complex system of tariffs that it says stifles competition by confusing customers.
Click HERE for graphic: On The Up: Fuel Prices (285.9kB)
The regulator revealed that the big-six average profit per household soared from £15 to a record £125 a year since June, following a round of price hikes that has left more than a quarter of Britain's homes in fuel poverty, where energy bills account for at least 10 per cent of post-tax income.
Ofgem said it was important for customers to be able to identify the cheapest deals and switch easily between suppliers. With a bewildering array of 400 tariffs to choose from and confusing bills, customers are paying more for their gas and electricity than they need to, Ofgem said. Alistair Buchanan, the chief executive, said: "Radical change is needed."
Ofgem is proposing to force suppliers to offer a single "no-frills" tariff. The regulator would fix a "standing charge" per unit, on top of which the energy suppliers will have to offer a variable price per unit, making bills clear and price comparison easier.
The only variable element on the bill would be the price the company is charging for a unit of gas or electricity. Although Ofgem will allow the big six to offer other "innovative" tariffs, they will need to fix their prices for the duration of the deal.
Ofgem will publish a more detailed version of its proposals in November when it will consult with consumer groups, energy companies and other interested parties. Mike O'Connor, chief executive of Consumer Focus, said: "Consumers are faced with a thicket of energy tariffs that can seem designed to confuse all but the most persistent and numerate consumers."
By making it easier for customers to compare prices, the proportion of customers switching providers each year will significantly increase from its present level of about 15 per cent, consumer groups argue. As a result, competition will increase and prices will come down.
With the recent round of price hikes adding £175 to the average British combined gas and electricity bill – taking it to £1,170 – utility bills have become a politically sensitive issue. Chris Huhne, the Energy Secretary, has convened an emergency summit with the big six, consumer groups and Ofgem on Monday to "see what more can be done".
The big-six supply arms were barely scraping a profit before the summer and have tended to operate at a loss in the past six years, effectively being subsidised by the healthy profits made from their energy-generation units. But wholesale gas prices rose by 40 per cent in the past year and coal costs soared, so the price of producing electricity has also soared, reducing the scope of the big six to hold down utility bills.