Regulator meddling 'driving up our energy bills'

Ofgem to blame for higher gas and electricity bills

Updated: 
Ofgem driving up energy bills

Five former energy regulators have suggested that tougher rules by Ofgem may be to blame for higher gas and electricity bills and weakened competition.

The group said regulation had become "significantly greater in detail, scope and severity" since strategy began to take a "radically different path" in 2008.

In a submission to the Competition and Markets Authority (CMA), which is conducting a full-scale probe into the sector, they called for an "unbiased" analysis of the effect of regulators' interventions.

The letter is signed by former executives at Ofgem and its predecessors Ofgas and Offer, with experience from 1989 to 2010. They said questions had been raised "as to the appropriateness and effectiveness of a number of these interventions".

They argued that some regulation could increase costs "leading to lower customer benefits including via higher prices, and weaker rather than stronger competition".

The letter pointed to the recent growth of small suppliers which may reflect their exemption from the so-called "green levies" imposed by the Government to pay for environmental and social programmes.

The CMA has already said in its "statement of issues" that it will look into whether this exemption - for suppliers with fewer than 250,000 customer accounts - is acting as a "barrier to expansion".

The former regulators' letter also pointed to the disappearance of tariffs without standing charges, which had been brought in to meet the needs of older and lower income customers, and questioned whether Ofgem rules may be responsible.

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It has ordered suppliers to narrow the range of tariffs offered.

The former officials' letter said the creation of retail competition in the British energy sector had been "one of the great successes of energy privatisation and regulation" and had been "admired and copied throughout the world".

They said that in 2007, Ofgem had reported vigorous price competition for all customers and high switching rates - and that they were concerned about how the market was viewed today, resulting in the current probe.

The letter added: "Because this investigation involves issues of confidence and trust in market and regulatory arrangements, it is important that the CMA's analysis and report should be, and should be seen to be, independent of Ofgem."

It was signed by Stephen Littlechild, former head of Offer; Sir Callum McCarthy, former chairman and chief executive of Ofgem; former Ofgem executives Eileen Marshall and Stephen Smith; and former Ofgas head Clare Spottiswoode.

An Ofgem spokesman said: "Many of the current problems with retail competition in the energy market were showing before 2008 and the regulatory and policy environment has changed significantly since then.

"Our reforms to make the market simpler, fairer and clearer for consumers have been in place since earlier this year with the aim of tackling some of the issues affecting competition.

"Ofgem is fully focused on improving both regulatory and market performance for the benefit of consumers, including by co-operating with the CMA investigation that we initiated.

"In this context we will certainly pay close attention to the views of past energy regulators, as we do to all views and opinions that might contribute to better future performance."

Ofgem referred the energy sector for a full-scale competition probe earlier this year, saying soaring household bills and intensifying public distrust highlighted the need for an investigation.

It said energy retail profits increased from £233 million in 2009 to £1.1 billion in 2012. It also found prices had risen by 24% over the period, well ahead of the rate of inflation at 13.8%.

The 18-month probe could see Britain's Big Six energy suppliers face break-up.

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