The energy watchdog is cracking down on providers’ profits: could this mean lower bills?
By Chris Torney
After months of price-rise misery for gas and electricity customers, the energy industry regulator Ofgem has signalled some good news in the form of a crackdown on excessive energy company profits.
But whatever success the watchdog has in cutting the rates we pay for energy, our bills are unlikely to come down overnight – and crises in Africa, the Middle East and Japan could even lead to higher prices later in the year.
With the Big Six suppliers all having raised standard prices over recent months, however, now could be the right time to switch energy providers.
Watchdog tells firms to clean up their acts
Last week Ofgem said that the Big Six energy firms – British Gas, EDF, E.ON, npower, ScottishPower and Scottish & Southern Energy – had until the start of June to address “anti-competitive practices”, or face an investigation by the Competition Commission.
So what does Ofgem believe is wrong with the way gas and electricity are sold in the UK?
One of the most serious allegations is that providers are quick to raise tariffs when the cost of wholesale gas is on the rise (as it has been over the past year), but slow to cut rates when the price of gas falls.
The watchdog also believes that the huge array of tariffs available only serves to confuse customers – and has, in fact, resulted in a fall in the number of households shopping around for cheaper suppliers.
Ofgem now wants firms to sell a chunk of the power they produce to encourage new suppliers into the market. It also wants the Big Six to reveal the price they pay for wholesale gas so it can check whether the companies have been guilty of profiteering.
If Ofgem is not happy with the response from providers, it says it will refer the market to the Competition Commission for investigation. The commission has the power to break up companies or issue pricing guidelines.
But Alistair Buchanan, Ofgem’s chief executive, has admitted that this process could take three or four years.
Millions still paying highest rates
Ofgem also revealed that around four in 10 households had never switched their energy provider since being given the opportunity by privatisation.
These people are likely to be paying the most expensive tariffs for gas and electricity.
Anyone who has never switched is likely to be able to save hundreds of pounds a year by moving to a cheaper tariff. If this applies to you – or perhaps to someone you know, such as an elderly relative – then now is the time to switch gas and electricity suppliers.
International effects
The ongoing crises in Libya and the Middle East, plus the aftermath of the earthquake and tsunami in Japan, are likely to put upward pressure on energy costs this year. This could result in higher bills for UK households later in 2011.
The likes of Libya and Saudi Arabia are significant oil producers: if supply from these countries is thought to be under threat, oil prices will rise.
At the same time, the ongoing problems at the Japanese nuclear reactor hit by the tsunami means that the nation’s demand for oil will increase over coming months – again putting upward pressure on prices.
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