Is Over Regulation Part of the Problem with the Energy Sector?
It's well known that there are issues in the energy industry in terms of high prices and monopolisation, specifically by the 'Big Six' suppliers. Efforts have been made to regulate the industry, in order to benefit customers with fairer deals and more competitive rates. However, is it possible that these efforts have in fact been counter productive?
This argument has been made by several former regulators, including former heads of gas and electricity regulation and previous heads of Ofgem. They argue that regulation has been far too aggressive since 2008, and is in fact hindering competition between suppliers and keeping prices high.
While Ofgem have been striving to level the playing field through interventions, these former regulators say that the problem has been made worse through imposing extra costs and forcing cheaper tariffs to be eliminated. While these regulation interventions have had the intention of promoting customer engagement, this can actually increase transactions costs, while also lowering the benefits to customers through higher prices and weaker competition.
Ofgem changed industry rules to mean that suppliers are only able to offer four tariffs, meaning that some of the cheaper tariffs had to be withdrawn. This included tariffs that benefitted more vulnerable customers, such as the elderly or those who were struggling with their finances.
Less Promotional Energy Deals...
Suppliers were also stopped from offering new customers cheaper introductory deals therefore denying these to existing customers. While on paper this seems like a fair rule, in actual fact it serves to restrict the competition between suppliers. All in all, the number of deals on offer by suppliers have been reduced, and this leaves customers less inclined to shop around. Price comparison is the best way to get a good deal from energy suppliers, so further competition and incentives should be encouraged.
These findings come as part of an inquiry launched by the Competition and Markets Authority on behalf of Ofgem, who are investigating the industry over concerns of rising energy prices and lack of competitive pressure. Hopefully, the enquiry will lead to more investigations such as this one, which could lead to massive changes across the sector.
Such an upheaval would only be a good thing for customers, who are faced with ever-rising utility costs. However, these findings suggest that Ofgem should be more prudent with their solutions, as it seems they can do more harm than good.
If you are unsure about any aspect of your home or business energy contract, just get in touch with the Love Energy Savings team.