Ofgem promise investigation of price hikes

29 November 2010, 14:25   By Julia Kukiewicz

OFGEM have launched an investigation into the significant price increases which have been announced by most of the UK's biggest energy firms over the past few months.

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The energy regulator estimates that utility suppliers are now making a profit of around £90 on a standard household dual fuel tariff, an increase of 38% on September's profit margins.

It's thought to be unlikely that the investigation will actually conclude that the energy market is uncompetitive, however.

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That conclusion would lead to further, lengthy, regulation of the energy sector by the Competition Commission.

However, Ofgem could fine energy firms millions of pounds if it finds that the companies aren't currently playing fair with consumers.

Ofgem's Chief Executive, Alistair Buchanan, said: "The energy retail market can only be fully effective if consumers have confidence that the market is transparent and easy to take part in.

"So we will go beyond our usual quarterly reports on prices and do a comprehensive review of the retail market... Greater transparency in the market is good for consumers, investors and for the energy industry as a whole."

Who's increasing energy prices?

British Gas and Scottish & Southern Energy (SSE) hiked prices by 7% and 9% respectively for the average household earlier in the year.

Scottish Power became the latest to announce a hike just ten days ago.

Under that increase, the cost of gas will increase by an average of 2% while electricity prices will go up by an average of 8.9%.

Npower are set to announce any changes to their energy prices later this week and the last of the 'big six' UK energy suppliers - EDF - has also held off on announcing any changes to its pricing.

Only E.ON have pledged that they won't be changing prices until March of next year.

Wholesale prices and green energy to blame

The energy firms have told the press that they're confident Ofgem won't find anything amiss in their pricing.

Throughout this round of price hikes, all firms have been keen to stress that they're merely passing on increases in the wholesale price of supply, rather than increasing profits.

Ofgem's analysis so far appears to directly contradict that assertion.

Energy providers are likely to strengthen their claim by saying that they also face increased costs elsewhere, then.

Responding to Ofgem's announcement, for example, industry body Energy UK highlighted the increased pressure on the energy sector to meet green obligations as being behind hikes.

Christine McGourty, director of Energy UK, said: "It is a complex market, made more so in recent years by the growing number of environmental obligations on the energy sector.

"Customer's bills today are made up of far more than just the cost of the gas and electricity they use but also an array of costs associated with the need to decarbonise our power supplies."

Allegations that the energy companies are increasing their profits at the expense of consumers risks prompting a backlash, however, and any attack on green policies could cause another one: Ofgem are likely to take a dim view of companies that attempt to renege on their green commitments.

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