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Is Energy Regulator Ofgem to Blame for Higher Fuel Prices?

August 18, 2014 | Market Watch: Price Trends

Nobody ever likes to see heating oil prices rise – we all have budgets to keep to and need fuel for own homes. But consumers generally understand that supply issues can cause price fluctuations at times, and fuel prices may rise when demand is at its highest.

But when price increases are caused by other factors – such as market regulation – this can be a bitter pill to swallow. The question is, to what extent are UK oil prices determined by the actions of Ofgem, Britain’s energy watchdog?

This question could be answered over the next couple of years, as the Competition and Markets Authority (CMA) carries out a wide-ranging review of the energy market. Ofgem has brought about the investigation, believing that homes and businesses are paying too much for fuel. But some think the regulator is partly to blame for high prices.

As reported by the Telegraph, five former regulators have raised concerns about the role played by Ofgem. In a submission to the CMA, the quintet – which includes Stephen Littlechild and Sir Callum McCarthy – criticised regulation imposed by the body since 2008.

They believe the more interventionist regulatory approach has helped increase profits for energy suppliers at their customers’ expense. “Regulatory interventions… can increase customer and supplier transactions costs, leading to lower customer benefits including via higher prices, and weaker rather than stronger competition,” the ex-regulators stated.

Mr Littlechild noted that the combined profits of the Big Six energy firms rose from £233 million in 2009 to £1.1 billion in 2012. He told the Sunday Telegraph that post-tax takings have “gone up consistently” since Ofgem started intervening in the market.

“I’m not aware of anything else that could have caused it,” he told the news provider. “The only thing causing higher profits is the restriction on competition [Ofgem] has imposed.”

The CMA will look at all aspects of competition in the energy market during its investigation, and its report will be telling. It remains to be seen what the findings may be, but consumers will hope the upshot is more affordable fuel for their households.

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