Ofgem: new powers are unlikely to stabilize energy prices

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28 September 2011, Gas, Electricity

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During the Liberal Democrats' annual conference Mr Huhne proposed a list of action points designed to improve energy consumers' rights and to "get tough" on suppliers. With major suppliers having repeatedly increased energy prices in recent years, Huhne's announcement follows the established tradition of calls being made for greater power over the liberalized energy market.

By his own admission, customers were partly to blame for not actively switching suppliers, a statement that caused widespread anger. However, in an attempt to address the situation the government plans to task Ofgem with reviewing whether or not energy suppliers stifle competition and block new market entrants by offering low online deals while keeping the majority of customers on expensive standard tariffs.

The reforms would provide consumers with redress if they suffer as a result of a company breaching its license conditions, and would also enable customers to complete the switchover to a new supplier within the course of three weeks once the cooling-off period has elapsed. New customers are to be offered guidance from their supplier about their rights and the service they can expect in the form of a checklist compiled by consumer watchdog Consumer Focus.

In addition, energy suppliers and the government have reached an agreement in principle to inform customers of the existence of cheaper tariffs. Finally, the Department of Energy and Climate Change plans to set up a working group to assess and establish the potential of collective purchasing and switching processes.

While many of these proposals appear to be worthwhile in theory, questions abound as to how much of a difference they will actually make. For example, greater competition to break the dominance of the Big Six is certainly desirable, but given consumer apathy towards switching there is no guarantee that this would actually have an impact on energy retail prices.

Rather than continually making amendments, the government and Ofgem should define their vision of the ideal energy market in terms of levels of competition and energy prices, particularly in recognition of the existing tariff complexity and prevailing switching inertia. From this starting point, all market participants should then discuss and negotiate how the retail market can best be improved to cater for everyone's needs. Otherwise the recent reforms will not be the last.

Source: Datamonitor

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