Why are Energy Prices so Complex?

Despite a relatively mild winter, energy prices have remained a hot topic for politicians over the last few months.

Calls for a freeze on energy prices and simplification of tariffs have certainly captured the public mood but intervention by government and the regulator can be counter-productive.

Energy prices are significant costs for consumers so it is important to understand how the energy companies are regulated by Ofgem and how this affects end users.

What is Ofgem?

Ofgem is the Office of Gas and Electricity Markets created to regulate a former monopoly industry. It is a non-ministerial government department and an independent National Regulatory Authority which is recognised by EU Directives. Ofgem’s main objective is to protect the interests of both current and future electricity and gas consumers.

In carrying out its primary objective, Ofgem seeks to do the following:

• promote value for money,
• promote security of supply and sustainability, for present and future generations of consumers, domestic and industrial users,
• supervise and develop markets and competition,
• regulate and the deliver Government schemes.

None of these mean that the supply of energy will necessarily be made simple and easy to deal with.

Can Ofgem Freeze Energy Prices or Simplify Tariffs?

The simple answer is no and yes. Ofgem does not have the power to freeze energy prices; this could only be done at government level. It does though have the power to force energy companies to offer simpler tariffs and has done so by only allowing each to have four.

The problem with making changes, even changes designed to simplify tariffs, is that it can have unintended consequences that actually leave consumers worse off and feeling less certain about what is available. Combined with a degree of inertia when it comes to switching, it means customer may not get the cheapest deal for them.

Simplifying tariffs means that energy companies have reduced the number of tariffs they offer, including some of the cheapest ones. Ofgem has also effectively banned the certain discounts and special offers in the process. For those customers who felt they had found a good deal, this just adds to the confusion.

To tackle these issues Ofgem has recently requested that the Competition and Markets Authority launch an investigation to see how the effectively the energy market is really working.

Protecting Consumers

Where energy companies abuse their position, Ofgem also has the power to investigate and bring enforcement measures where necessary. This applies both to domestic consumers and business consumers.

The most recent enforcement case saw British Gas Business paying fines and compensation to the tune of £5.6m to some of its business customers. The company had failed to give notice to customers when their supply contracts were coming to an end and also unlawfully blocked businesses from switching suppliers.

Comment

The peculiarities of the energy market mean that it is difficult to have a truly simplified offering. 

Consumers or businesses facing difficulties with their energy suppliers cannot complain directly to Ofgem but must take their complaint up with their energy company. Consumers and micro-businesses may also be able to make a complaint to the Energy Ombudsman if their problem is not resolved by the company.

For specialist advice regarding disputes over energy supplies, contact Peter Gourri today by email PGourri@rollingsons.co.uk or telephone 0207 611 4848.