UPDATE 1-UK to force energy firms to reduce number of tariffs

Tue Nov 20, 2012 6:13pm IST

Stocks

   

* Suppliers to offer one fixed, one variable rate tariff
    * To scrap discounts for dual fuel, paying method
    * Experts concerned limiting tariffs impedes competition


    By Karolin Schaps and Sarah Young
    LONDON, Nov 20 (Reuters) - Britain plans to limit its energy
suppliers to a maximum of four tariffs on gas or electricity to
improve transparency and help customers find the cheapest deal
in the government's latest attempt to tackle rising prices for
consumers.
    The government announced on Tuesday that energy suppliers
will have to offer customers their best value tariffs, including
one fixed and variable rate option, and scrap discounts for
customers receiving both electricity and gas from one supplier
or based on payment methods.
    "Bill payers will no longer face the impossible choice
between hundreds of tariffs; each customer will have a maximum
of four tariffs for gas or electricity per supplier to
consider," said Energy Secretary Edward Davey, adding that all
suppliers have to make these changes by the summer 2014.
    Britain's six largest energy suppliers are EDF Energy
, Centrica, SSE, Scottish Power
, E.ON and RWE npower, who
currently provide varying numbers of tariffs (see table below).
    Davey clarified remarks initially made by Prime Minister
David Cameron one month ago which caused confusion within the
energy industry and the government, as well. 
    Britons see climbing energy prices as the biggest threat to
their standard of living over the coming year, according to a
YouGov survey published in October. UK inflation is already set
to rise further this year due to recent gas and electricity
price hikes by energy suppliers.  
    "You have to keep shopping around but at the moment they
[the suppliers] all seem to be putting them up. There's
not a lot of difference between them," said Suzanne Shawcross, a
53-year old London resident.
    The government is encouraging consumers to switch their
energy supplier to secure the cheapest tariffs, but many say the
process is tiring and confusing.
    "All this switching is not as straightforward as they say.
It's a terrible fiddle to go online and get figures to compare,"
said 76-year old Jennifer Pulham, a retired teacher.
    The new rules announced on Tuesday are subject to a
consultation period.
    
    COMPETITION
    The government says its proposals strike the right balance
between engaging consumers in the energy market and maintaining
incentives for energy suppliers to compete.
    "Our objective here has been to work to help hard-working
families who often struggle to pay their energy bills and that's
what our proposals are designed to do," said a spokesman for
Prime Minister Cameron.
    But experts have voiced concerns that reducing the amount of
tariffs will hinder rather than help competition and prevent
consumers from shopping around.
    "Fewer tariffs to choose from means the companies have got
less to compete on because they're not competing on the quality
of the product because ultimately they're providing a
commodity," RBC analyst John Musk said.
    At the same time, energy bills will continue to rise because
underlying factors such as costs for social and environmental
programmes and more expensive wholesale products will be passed
on to consumer bills.
    "These costs all have to be passed on (...) and they are
accounting for at least half, if not more than half, of recent
tariff increases," said UBS analyst Stephen Hunt.
       
    IMPACT ON SUPPLIERS
    Offering a reduced number of tariffs is unlikely to bite
into the balance sheets of suppliers as the business of
supplying energy is only marginally profitable, analysts said.
    "If they are forced to switch some customers to lower
tariffs that's not going to mean lower profitability for them in
general," RBC analyst John Musk said.
    "I don't think these companies are making a lot of money on
supply anyway."
    Energy suppliers said they were supportive of efforts to
create a fairer and simpler tariff regime.
    "However, it is important to recognise that in the UK, we do
have some of the cheapest energy prices across Europe and costs
are also driven by factors outside of our control," a spokesman
for RWE npower said.
    
 Number of tariffs offered by UK's
 top energy suppliers
 Centrica         6
 EDF Energy       2
 E.ON             5
 RWE npower       8
 Scottish Power   6
 SSE              3
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