New energy reforms unveiled by Government

The Government has announced plans to overhaul the energy market with a package of reforms, including criminal penalties for badly behaved suppliers and 24-hour switching.

The Government has unveiled a series of proposed reforms to overhaul the energy market.

Energy secretary Ed Davey said the industry needs to change "to put consumers in control".

The reforms set out in the Annual Energy Statement include the promise of a 24-hour timeframe for switching between suppliers (down from five weeks) and criminal sanctions for energy firms that try to manipulate the market. These come in addition to Ofgem’s previously announced energy market reforms.

The announcement comes at a time when there is growing concern about the rising cost of energy bills.

So far four of the ‘Big Six’ energy companies – SSE, British Gas, npower and Scottish Power – have hiked prices by an average of 9%, which will add around £130 a year to a typical dual fuel bill.

The reforms

Here are the main proposed reforms outlined in Ed Davey's announcement:

24-hour switching
One of the biggest barriers to competition is how long it takes to switch energy supplier. Currently it can take five weeks to move, even though the process is easier than switching a current account, which can now be done in seven days.  

Energy companies will be told to make switching suppliers faster. Ed Davey believes it can be done in 24 hours rather than the current five weeks without bills being impacted.

Mr Davey will meet with First Utility and other interested suppliers including Ovo, Spark, Good Energy, E.ON, ScottishPower, SSE and Co-operative Energy next week to discuss how this could happen.

Credit balances
Another plan is to make energy companies be more open about how they treat credit balances, when customers have paid in advance for more energy than they've ended up using.

Firms will have to make more effort to return the credit balances to customers with closed accounts. Should this not be possible the money should be ring-fenced to help vulnerable customers.

Energy and Climate Change Minister Greg Barker will meet suppliers to discuss the levels of credit balances energy companies hold.

Yearly market assessment
Energy regulator Ofgem, along with the Office of Fair Trading and the new Competition and Market Authority, will carry out a market assessment every year to make sure energy companies are behaving and that suppliers compete fairly.

The first assessment will be ready by Spring 2014.

Transparent finances
Energy firms will also have to be more transparent when it comes to how they report their finances.

Ofgem will analyse current practices and set out steps to improve transparency around profits and how money is spent.

This reform will come in Spring 2014 alongside the first market assessment.

Criminal sanctions
For the first time the Department of Energy and Climate Change (DECC) will work on introducing criminal sanctions for firms that try to manipulate energy markets, similar to the penalties for the same practice in financial markets.

Energy companies have recently been accused of inflating prices by buying fuel from branches of its own business and have been grilled by MPs over price rises averaging over 9% when wholesale prices have only gone up 1.7%.

Sharing energy data
The DECC will also look at getting energy suppliers to securely provide key data like personal energy usage to help third parties such as switching sites do a better job.

Sharing this information could mean a more personalised energy supermarket can be opened up which will make switching easier.

Response

Unfortunately, none of the reforms unveiled today will be able to help people with their energy bills this winter.

Labour leader Ed Miliband, who pledged a 20-month energy bill freeze should the party win the 2015 General Election, has dismissed the review

Meanwhile Which? executive director Richard Lloyd said: “There will be no great applause from the millions of consumers worrying about rising energy costs for the Government committing to make the regulators simply do their job.”

If you need help with your energy bills read How to beat the winter energy price rises and Where to get help with paying your energy bills.

Do you think the reforms will improve the energy market? Let us know in the Comment box below.

See if you can save by switching energy supplier

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Ten ways to save on energy

How to switch energy supplier

How to beat the winter energy price rises

Where to get help with paying your energy bills

Ways to pay for energy efficiency improvements

How prepayment, credit and smart energy meters work