Watchdog to Investigate UK Retail Energy Market

UK energy watchdog Ofgem has released its latest Electricity and Gas Supply Market Report, which indicates that that the margin on a standard dual fuel tariff is now around £90, an increase of 38% from September. Whilst Ofgem would expect efficient firms to make a profit, it wants clarity on behalf of consumers that the market is transparent and is working as effectively as possible.

This is why Ofgem will review the retail energy market to decide if further changes are needed to ensure the market works in the interests of consumers and to increase transparency in the energy market. As part of this review it will investigate the retail accounts, recently received by Ofgem under new licence requirements.

The figure for net margin incorporates the new, higher prices of the three ‘big six’ energy supply companies that have already announced price rises for this winter. The big six comprises British Gas, E.ON Energy, EDF Energy, Npower, Scottish and Southern Energy and ScottishPower. Only one big six supplier, EDF Energy, has promised to freeze prices between now and March 2011. The other two big six suppliers have not yet made their pricing positions known.

“With Britain facing an investment bill of £200 billion over the next ten years, consumers have the right to expect that the energy retail market is providing them with value for money. Our analysis shows an increase in company margins from £65 to £90 at a time of rising energy prices, which causes Ofgem to rightly ask if companies are playing it straight with consumers,” says Alistair Buchanan, chief executive of Ofgem. “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 and our recent reforms from the consumers’ perspective. We will also carry out a detailed investigation of the newly available retail accounts and the facts behind these numbers.”

Since its Retail Market Probe in October 2008, Ofgem has secured a series of important reforms for customers to improve transparency and ensure fair play. This has secured some real benefits for consumers, including the removal of unjustified price differences, required standards of acceptable practice and improved consumer information, such as annual energy statements. As part of its review Ofgem will be looking at how effectively energy companies have implemented all of these reforms.

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