Ofgem, the energy regulator, is delaying reforms to the domestic fuel market, a move that leading utility companies hope will give them time to prevent bans on discounts they say benefit consumers.
Among discounts under threat is the “dual-fuel” reduction in bills offered by the “big six” utilities to customers who buy both domestic fuels from the same supplier.
The marketing of discounts for customers paying by direct debit and online also remains under review following concerns that companies are discriminating against “sticky” customers less likely to switch supplier, in part because of poorer access to credit.
Also under review are the offering of loyalty bonuses such as Nectar points by British Gas and Marks and Spencer vouchers by SEE Group.
Initial responses to proposals made last year by Ofgem were published last month. The proposals centred on tackling confusion over the proliferation of tariffs, mis-selling and barriers to entry for new energy suppliers.
The regulator says it will publish further proposals before the winter, acknowledging movement by some suppliers to act on consumer confusion in the market.
This would extend the process several months beyond the timetable that had been envisaged by some utilities.
Industry sources suggest the gross value of discounts available on standard variable – or “evergreen” – tariffs could be as high as £130 or more. That compares with the latest estimate of an average annual bill of a “big six” standard tariff dual fuel customer of £1,310 a year.
Reductions for direct debit payment of about £70 a year represent the biggest component of the discounts available from the “big six”: British Gas, part of Centrica; Npower, part of RWE; EDF; ScottishPower, part of Iberdrola; Eon; and Scottish and Southern Energy. Dual-fuel discounts represent less than £20 of a household’s potential saving.
Nick Luff, finance director of Centrica, says Ofgem’s stance on tackling tariff proliferation and other measures to encourage competition are warranted. But he insists proposed bans and restrictions on dual-fuel, other discounts and bonuses will not benefit customers.
“It’s not in the interest of consumers to dispense with discounts,” he says. “A lot of our customers benefit from dual fuel discount. Under Ofgem rules, that wouldn’t be allowed and we are pushing back on that.”
Among Ofgem’s arguments against dual fuel offers is that they can effectively mask attempts by British Gas, or other incumbent electricity suppliers created by privatisation, to maintain margins on their original supply contract.
And while steep discounts available for direct debit and online payment may benefit a minority of consumers, they have done little to encourage most consumers to switch suppliers.
Ofgem’s initial consultation document last year noted that there had been no change to the high regional market shares of incumbent electricity suppliers and British Gas nationally.
It also noted that, in spite of discount offers, that there had “been an increase in the number of passive consumers and fall in the number of active consumers”.
And it also partly backed claims made by politicians at last summer’s party conference season of overcharging and profiteering by the industry by suggesting there was “evidence that energy prices have tended to rise in response to wholesale cost increases more quickly than they fall with decreases”.
Consumer groups have also called for a more nuanced approach to allowing leading suppliers to maintain discounts so long as they are not used in predatory pricing.
Hannah Mummery, energy expert at Consumer Focus, says: “We agree with Ofgem that energy tariffs need to be simplified and that discounts which may mislead consumers must be tackled. However, we have concerns that removing dual-fuel and non-monetary discounts from standard evergreen tariffs could penalise some people.”
However, Which? has warned that Ofgem proposals could still lead to a “business as usual” approach of companies targeting their best offers at a small number of sophisticated customers.