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'Unfair' energy bill ban proposed 'Unfair' energy bill ban proposed
(about 1 hour later)
Energy companies will be banned from charging "unjustified" prices under new rules proposed by the regulator Ofgem.Energy companies will be banned from charging "unjustified" prices under new rules proposed by the regulator Ofgem.
Prices, including those for pre-payment meters, will have to be "objectively" justifiable under new conditions. Prices for different payment methods, such as pre-payment meters, will have to reflect costs to the supplier.
Ofgem started the investigation in February 2008 after all the leading suppliers imposed big price rises. Ofgem started the investigation into the state of the energy market in the UK in February 2008.
It has been looking for evidence of collusion among suppliers and to see if the wholesale markets in which gas and electricity are traded are working.It has been looking for evidence of collusion among suppliers and to see if the wholesale markets in which gas and electricity are traded are working.
'Emphatic move''Emphatic move'
Ofgem had previously said that there was no evidence of collusion between the "big six" suppliers in setting prices. In its initial findings in October, Ofgem said that there was no evidence of collusion between the "big six" suppliers in setting prices and the market was "working well" for most consumers.
Under the proposed rules, different payment methods will have to reflect the cost to the supplier of offering those methods. This is an emphatic move by Ofgem to clear the decks of obstacles that prevent consumers from getting access to the best offers Alistair Buchanan, Ofgem
This could lead to lower prices for consumers using direct debits and higher prices for those on pre-payment. But it raised concerns over the difference in prices for those paying in different ways, and deals for those with no gas supply.
It will also compel energy companies to provide an annual statement to customers providing details such as the tariff, consumption and a reminder of the customer's right to switch. About 12% of households pay one fuel bill on a pre-payment meter, although this increases to 37% of those in social housing, it said.
In 2005, they paid £80 more, on average, than direct debit customers. By the beginning of 2008, this had risen to £125, but this has since dropped back. Ofgem said in October that the cost of servicing a pre-payment meter is £85 a year, and so customers should pay no more extra than that.
It also said that those paying by cash or cheque each quarter paid £80 more a year than those on direct debit, up from £40 at the start of 2005.
Under the proposed rules:
  • Different payment methods will have to reflect the cost to the supplier of offering those methods
  • Energy companies must provide an annual statement to customers providing details such as the tariff, consumption and a reminder of the customer's right to switch
  • An at-a-glance price scorecard on bills to make it easier for consumers to switch
  • Small businesses to be given clear contracts with no automatic rollover when the agreement ended
  • Written quotes on doorstep sales.
"This is an emphatic move by Ofgem to clear the decks of obstacles that prevent consumers from getting access to the best offers," said chief executive Alistair Buchanan."This is an emphatic move by Ofgem to clear the decks of obstacles that prevent consumers from getting access to the best offers," said chief executive Alistair Buchanan.
The regulator will publish a draft of the new licensing condition next month and consult with energy suppliers, with the aim to implement them by the autumn. The regulator will publish a draft of the new licensing condition next month and consult with energy suppliers, with the aim to implement them by the autumn. The new rule would be in place for three years before being reviewed.
If they cannot agree, Ofgem said it retains the right to refer the matter to the Competition Commission.If they cannot agree, Ofgem said it retains the right to refer the matter to the Competition Commission.
Price cutsPrice cuts
Ofgem announced last year that it would be conducting a quarterly review of the link between wholesale prices and domestic bills.Ofgem announced last year that it would be conducting a quarterly review of the link between wholesale prices and domestic bills.
It concluded earlier this month there was no evidence of collusion between suppliers in setting prices. Price cuts in 2008 British Gas: gas prices down 10% on 19 FebruaryScottish and Southern: electricity tariffs down 9% and gas down 4% on 30 MarchScottish Power: gas prices down 7.5%, electricity down 3% on 31 MarchEDF Energy: electricity down 8.8% in some areas on 31 MarchE.On: electricity tariffs down 9% on 31 MarchNpower: electricity prices down 8% on 31 March class="" href="/1/hi/business/6043288.stm">Battling bills - what help is there?
Ofgem also stressed that there was no evidence that suppliers passed on increasing wholesale costs to customers, but then failed to drop prices when costs fell. It first concluded that there was no evidence that suppliers passed on increasing wholesale costs to customers, but then failed to drop prices when costs fell.
This month, energy supplier Npower is to cut electricity prices for UK households, the last of the "big six" energy companies to announce a reduction in either gas or electricity bills for customers this year. At the end of the month, five major energy suppliers will cut some energy prices for UK households, following the move of British Gas in February.
Reacting to the latest Ofgem announcements, Ann Robinson of website Uswitch.com, said: "Ofgem is setting out to banish apathy from the energy market. This is great news for consumers and small business owners and should put them in control of what they pay for their energy."
A response from the body that represents the energy suppliers is expected shortly.
The British gas and electricity markets were opened to competition 10 years ago and price controls were removed six years ago.
Six suppliers now dominate the market - Npower, EDF, British Gas, Scottish Power, Scottish and Southern Energy, and E.On.