Energy Price Hikes Under Scrutiny

By Mark Dennis
Published on 22 Feb 2008
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Ofgem respond to growing consumer unease and announce plans to take a closer look at the driving forces behind rising energy prices in the UK.

Despite earlier reassurances that the British energy market is as competitively priced as possible, industry regulator Ofgem have this week announced plans to conduct a full review of the gas and electricity sector that supplies homes and small businesses.

The review will specifically focus on factors such as the relationship between wholesale and retail energy prices, the competitiveness of suppliers’ pricing within the market and consumers’ experiences of the energy market as a whole.

However, Ofgem have been clear to state that their investigation does not represent a back track on their previous dismissals of price fixing in the energy market, instead emphasising that this review is a response to growing consumer concern over the affordability of energy in the UK.

At a time when a succession of price hikes to the tune of approximately 15% have been announced across the sector, dissatisfaction with gas and electricity suppliers has reached it’s peak as further pressure is placed on consumers’ already overstretched wallets. And, after a week that saw British Gas announce profits of over £571million Ofgem had little choice but to investigate.

Alistair Buchanan, Ofcgem Chief Executive, commented: “Recent events in the market have increased public concern and have damaged customers’ confidence that competition is working well and giving them a good deal. Customer confidence is vital for a well-functioning market. So we shall replace our magnifying glass with a microscope and take a more detailed look at the retail market.”

Gas and electricity sector watchdog ‘Energywatch’ welcomes the investigation but rather than pointing the finger at supplier collusion surprisingly states a lack of competition in the market as the driving force behind expensive energy in the UK.

This supposition could well be the case as the number of gas and electricity suppliers servicing British homes has dropped from over twenty to just six in the past ten years. And, with ‘the big six’ having their fingers in both the energy production and supply pies, they are under no pressure to drive down prices as they’re set to benefit regardless of whether wholesale prices rise or fall.

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Magnifying glass

Calls have long been made before for more support to be given to smaller ‘supply only’ energy companies looking to introduce more competition into the market and it is hoped that Ofgem’s review will identify mechanisms that will facilitate this.

While it’s unlikely that we’ll see any reductions in energy prices as a direct result of this investigation in the near future, at the very least Ofgem’s review will give the public reassurance that the extra we're paying out for our gas and electricity bills covers the cost of powering our homes directly rather than simply lining the pockets of voracious energy corporations.

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