Isra-Mart srl : UK energy suppliers have been warned over unpublicized energy price rises

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Isra-Mart srl news:

Chris Huhne, the UK secretary of state for energy and climate change, has given energy suppliers a stern but fundamentally unnecessary warning regarding their practice of raising prices without notice. Ofgem is set to consult with the industry on this issue next month, and has a strong track record of facilitating changes to the industry, without requiring the stick of amended legislation.

Although energy companies have the option to block any changes proposed by Ofgem, it is highly unlikely that any supplier would look to block this particular change without very good reason. Consumers and the media are increasingly sensitive over fuel bills, given the historically high levels at which they are charged. Therefore, any objections surrounding this issue would no doubt create negative publicity for the suppliers.

The end price a consumer pays for energy is the product of many factors, such as the requirement for suppliers to achieve the level of investment needed to support recent environmental legislation. However, it is principally driven by wholesale fuel costs, which are becoming increasingly expensive.

In 2008, the wholesale cost of energy increased rapidly, driven partly by rising demand and partly by investors looking for a secure investment in the face of faltering financial markets. There were notable supplier casualties caused directly by these price increases in the business market, where short-term contracts to fix prices are the norm. Smaller suppliers were unable to purchase a sufficient amount of energy at a low enough cost in advance to ensure that they were still able to make a profit, and as a consequence, Bizz Energy and Electricity 4 Business ceased to trade.

It is not unreasonable, therefore, for suppliers to want to protect themselves from the unpredictability of the wholesale market, and indeed, more suppliers in the market means more competition and, ultimately, a better deal for consumers. It is appropriate that suppliers have a force majeure process in place to allow for rapid tariff changes, as Britain is becoming increasingly dependant on global energy markets, and must compete with other participants in the market. However, the ability to amend tariffs without notifying consumers until up to 65 working days after the change is not a practice that should be considered 'business as usual'.

Ensuring the protection of consumers and ensuring that the market remains competitive requires a fine sense of balance. Ofgem has the ability to walk this narrow path and to agree a solution with suppliers that is in the best interests of all parties. The government's threat of legislation is not likely to achieve this; instead, it will most likely restrict and constrain a market that needs to be increasingly agile to compete with the rest of the world for energy resources. After all, the benefit and curse of a competitive market is a competitive and cost-reflective price.