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Ofgem to Break ‘Stranglehold’ of Energy Firms

By Katie Anderson on August 8, 2011

Energy regulator Ofgem has vowed to break the monopoly of Britain’s leading energy firms in a bid to improve services for customers.

Chief Executive of Ofgem, Alistair Buchanan, said: “We will pursue breaking up the stranglehold of the Big Six to encourage more firms, such as new arrival The Co-op, to enter the energy market and increase the competitive pressure on the big firms”.

In recent times, Ofgem has been criticised for failing to control ever-increasing gas and electricity prices, which are actually beyond the scope of the regulator. Ofgem is able to regulate the energy firms with the aim of ensuring a competitive market, but it is unable to influence prices directly.

Encouraging Britain’s leading energy providers to auction off a percentage of gas and electricity production should help to foster more competitive prices, as smaller firms would be able to enter the market.

Energy prices continue to increase in Britain despite companies such as British Gas and E.ON posting massive annual profits. Following the lead of British Gas, E.ON increased its gas tariffs by 18 per cent earlier this month, whilst electricity will rise 11 per cent.

Fuel poverty is a growing concern in the UK and energy firms’ seemingly collective decision to insulate profit margins will ensure that thousands more homes will become fuel poor before the end of the year.

The Chief Executive of Consumer Focus, Mike O’Connor, noted that, although the price rises are invariably blamed on wholesale increases, the figures rarely add up.

Mr O’Connor said: “Wholesale costs are around a third lower than their 2008 peak, yet consumer prices have reached an all-time high. Ofgem has said it is prepared to refer the energy market to the Competition Commission if necessary. That is welcome, but the regulator must be prepared to act if it can’t say for certain whether prices are fair”.

Whether Ofgem is willing or able to influence energy costs remains to be seen. In the meantime, households can reduce their expenditure on power and central heating costs by employing various energy saving measures in the home, such as installing smart meters and solar photovoltaic panels.