Limiting energy suppliers to four tariffs was once a cornerstone of Ofgem’s Retail Market Review, but it finds few advocates today. Lois Vallely says its days are numbered.

Earlier this month, Ofgem told independent supplier Ovo Energy that it could offer an additional four tariffs to the four-tariff limit set last year.

This was not the first time the regulator had allowed the rule to be stretched. Since introducing the regulation in its Retail Market Review (RMR) reforms in 2014, derogations have been granted to no less than seven suppliers. When asked to account for this, an Ofgem spokesperson tells Utility Week the watchdog was “clear from the outset” that RMR was “not to stifle beneficial innovation”.

“When suppliers come forward with innovative tariffs that don’t fit our rules, we have allowed exceptions,” the regulator explains.

It also points out that five of the seven companies granted derogations over the past year have been independent suppliers: Ovo, Green Energy, Flow Energy, Ecotricity, and Good Energy.

With so many exceptions to the rule – and the regulator itself admitting that the rule is there to be broken – the controversial four-tariff policy looks likely to fall by the wayside after the general election.

If Labour has its way, RMR will enforce a tariff structure that relies less on limiting their number than regulating how easy they are to compare.

Labour shadow energy minister Tom Greatrex tells Utility Week: “We want to simplify things for customers, make tariffs easily comparable. There is a lot to be said for having a number of tariffs, but we don’t want people to get confused by the number of tariffs available.”

Suppliers should have the scope to introduce tariffs that reflect the capabilities offered by new technologies, such as time-of-use charging, Greatrex says.

RMR was originally launched by Ofgem in 2010 amid concerns that the energy market was not working effectively for consumers. Reforms were brought in to create a “simpler, clearer and fairer market”.

Since then, the regulator’s idea of what constitutes “simpler and clearer” has evolved, with Ofgem chief executive Dermot Nolan telling The Telegraph in October last year that the four-tariff limit would “probably be abandoned in the long-term”.

Speaking at a Utility Week event last year about the regulator’s role more generally, he said Ofgem wanted to move away from prescriptive regulation altogether to a regime centred on the “fair treatment of customers”.

A less prescriptive approach chimes with Labour’s plans, as well as with calls from both suppliers and customer groups.

A spokesperson for Which? tells Utility Week it is “much more concerned with the way energy tariffs are presented than the number of them”. It says simpler tariffs should be presented so it is “easy to see at a glance how much you’re paying and how that compares with other deals”.

Energy suppliers, both independent and incumbent, agree. Good Energy welcomes Ofgem’s willingness to grant derogations where regulations “get in the way” of delivering better products and services. A spokesperson says: “It is noticeable that most derogations have gone to the innovative independent suppliers in the market and it will be interesting to see whether or not this changes at all in the future.”

An Ovo spokesperson tells Utility Week the number of derogations granted for larger, as well as independent, suppliers signals a “need for more flexibility within the strict regulatory boundaries”. The company thinks a reconsideration of the rules as part of the Competition and Markets Authority investigation, or perhaps by Ofgem itself, would “certainly benefit our industry”.

It seems a long time ago that the tariff cap was heralded as “the most far-reaching shake-up of the retail energy market since competition was introduced” by Ofgem’s then chief, Alistair Buchanan. No longer would consumers be confused by complex tariffs or overwhelmed by options, he said at the end of 2012.

But with the cap being almost universally slammed for restricting competition by forcing suppliers to cut certain tariffs, such as those intended to help vulnerable customers, the rules seem likely to be scrapped.

Derogation requests

Good Energy

15 January 2014: Ofgem granted Good Energy a temporary derogation from the four-tariff cap, allowing it to offer customers on the Delabole local tariff an additional £50 if the windfarm exceeded its forecasted output.

14 May 2014: Good Energy granted a similar derogation, giving customers living close to the Hampole windfarm a 20 per cent discount on their electricity bills, and a potential £50 windfall payment.

EDF

17 January 2014: EDF received a derogation for its Barkantine tariff, for space and water heating via a district heating scheme and the electricity output from the Barkantine plant to local residents.

Green Energy

23 January 2014: Green Energy was awarded a derogation allowing it to give the company’s first 50,000 customers 400 free shares.#

Eon

17 June 2014: Eon received a derogation, allowing it to close its Warm Assist Fixed (WAF) tariff with minimal stress to customers on the tariff.

Ecotricity

2 July 2014: Ecotricity was awarded a derogation concerning its Electric Vehicle Discount Scheme, allowing the company to offer an annual cash discount to customers who own an electric vehicle registered to their home.

Flow Energy

22 September 2014: A derogation granted to Flow Energy allowed the company to offer a cash discount to domestic dual fuel customers who purchase its MicroCHP boiler.

Ovo Energy

10 December 2014: Ovo Energy got a derogation so it could continue offering its monthly interest reward to direct debit customers.

29 January 2015: Ovo received a derogation allowing it to add further local community tariffs under its Ovo Communities programme.

British Gas

23 January 2015: a derogation was given to British Gas allowing it to offer a cash discount to low-usage, vulnerable gas customers.