Energy bills to rise even higher, Ofgem on the spot
While the astronomical energy prices have been the talk of the town for the last couple of months, it was hard to imagine that this could get any worse.
But now industry analysts are saying that Ofgem’s earlier predictions of an £800 rise in yearly energy bills were optimistic as this figure may be closer to £1200 instead.
This is bad news for businesses and households who are already struggling with high inflation rates, especially as the energy price cap is expected to rise even further.
So what’s going on at Ofgem, why are we observing this behaviour from them? Here is our interpretation.
Monopoly-breaking vs resilience
According to the National Audit Office (NAO), Ofgem has not been successful in creating a resilient energy market that can successfully absorb turbulence.
It seems like the regulator has been too focused on setting low standards to lure in new energy suppliers into the market, partially to create a competitive environment to level the field with ‘the big six’ who used to dominate the market.
Breaking a monopoly is fair enough, but it looks like this went a tad too far as many of these new suppliers went bust when the energy prices started rising last year, as a result of being permitted poor credit management practices which left them over-leveraged.
To us, it looks like Ofgem saw the risk of a non-competitive market as being more significant than that of being resilient to black swan events like the war in Ukraine.
The issue is that the cost of what we perceive as a ‘monopoly-breaking gamble’ amounts to £2.7 billion, which will cost households an extra £94 each year on their energy bills.
This ‘hiccup’ represents about 8% of the expected price increase calculated by analysts.
Taming the hyenas with chopsticks
It seems like Ofgem is now fighting to keep up with the energy supplier pandemonium that was unleashed with the hike in energy prices.
Back in May, Ofgem had to publically ask suppliers to answer to accusations that it was overcharging customers unnecessarily while using inappropriate tactics for unfair pricing.
Ofgem has the power and responsibility to issue fines if it finds the accusations to be true, but can they really afford to punish suppliers who are already in trouble due to the price hikes?
Any more suppliers failing at this point may be the final straw for the general population who are already under immense cost-of-living pressure.
We have not followed what happened after the enquiries, so if you have any news, please do make sure to let us know in the comments below.
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