Radical overhaul proposed for energy industry

Ofgem proposes five reforms to overhaul the energy industry

Ofgem has unveiled plans for a radical overhaul of the energy industry following a probe into the books of the major suppliers.

The regulator accused the key companies of stifling competition with “poor behaviour” and drew up five reforms to combat the problems.

The big six suppliers have eight weeks to engage constructively with the proposals or face referral to the Competition Commission.

Here is a breakdown of Ofgem's proposed reforms:

- Price simplification. Ofgem will restrict the number of tariffs for standard products from each supplier to just one per payment method in relation to domestic customers. The regulator also plans to standardise the format of these tariffs across suppliers, with firms allowed to compete on just a single "per unit" price. Consumers would then be able to tell at a glance whether they can save money by switching supplier or moving to a new deal. Companies can still offer an unrestricted number of fixed-term products in a bid to encourage innovation and choice.

- Break the power of the big six over the wholesale electricity market. The big six must make available between 10 per cent and 20 per cent of their power generation into the market through an auction. Ofgem hopes this will allow smaller firms to enter the retail market.

- Tougher enforcement and more requirements to ensure companies play straight with consumers. Ofgem plans to tighten a number of licence conditions to give suppliers less wriggle room in how they interpret the conditions. Furthermore, failure to stick to these conditions is likely to be backed by appropriate punishment.

- Reduce unfair contracting. Ofgem plans to address contracting practices that were adversely affecting small business consumers. The regulator found companies were exploiting loopholes and forcing small businesses to continue with contracts when they would rather switch to another firm.

- Improve transparency. Ofgem will appoint an independent accounting firm to investigate the books of suppliers to make sure they are revealing enough to the consumer about their costs and prices.

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