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The utilities – almost as bad as the banks

There are three good reasons to hate the utility companies.   They raise prices as soon as wholesale markets rise, but when wholesale prices fall they delay a response and then don’t pass on more than a fraction of the wholesale price reduction.   They act like a cartel, and keep their bills so confusing and complicated as to defeat the ostensible aim of competition.   And they have far too cosy a relationship with their regulator, Ofgem, which seems much more concerned about the reputation of the market than about the customers many of whom are now freezing.   This is market failure on a grand scale.   Many people now loathe the gas and electricity providers as much as the banks.

The UK market is dominated by the Big Six companies: E.ON (German). npower, EDF (French), British Gas, Scottish Power, and Scottish & Southern.   Three of them have just announced price rises of 7-9% and the others may well follow, more than wiping out the cuts made earlier in the year to great fanfare.   Average annual energy bills for a 3-bed semi already stand at £1,350 a year, and in the current freeze may well be headed towards £1,500.

At the same time utilities’s profits are up 38% over the last two months alone.   Even Ofgem, the most timid of regulators, admits that the annual profit margin on a standard household dual-fuel tariff has risen from £65 to £90 at a time of rising energy prices.   So what is Ofgem doing about it?

There have been no less than 18 reviews of the energy market conducted since 2001 by Ofgen, MPs, the EU Commission, the Competition Commission (another spineless wonder), and government (enough said).   The latest response from Ofgem is that they’re questioning whether the companies are “playing it straight” with consumers.   Big deal.   We don’t even have access to the raw data to check for ourselves the full truth about how the companies, at a time of austerity and deep freeze, are concealing the full extent of their profiteering.   Wholesale gas prices on the spot market and short-term future contracts are publicly available, but most gas is bought under private long-term 2-3 year European contracts, while Ofgem has no jurisdiction beyond UK borders.

But it’s not just cheating over the hidden inter-play between wholesale and retail contracts.   An even bigger, and long-term much more serious, failure of the energy companies is to invest now to avoid, or at least minimise, the energy gap in the nation’s supply which is widely forecast between 2017-19.   The only effective way of ensuring that both these profound problems are remedied, after multiple market failures over the last decade, is by taking at least one of the Big Six into public ownership and replacing Ofgem by a much more thorough and determined regulator with increased powers to achieve full transparency and targeted intervention where necessary.The utilities -Th

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