UK Energy Increases Beg Questions of Network Owners and Regulators
By Anne Lewis-Schneider
The energy industry was broken up and sold off to various companies by government in the 1980ís and 1990ís and Ofgem was given the job of overseeing the industry. It was only in 2006 that Ofgem reviewed the gas and electricity market and found that perhaps their ruling for network owners may have been too lucrative. Not much attention was paid to the report at that time but it has risen in relevance in view of the state that energy prices are in in 2013.
It has now been said that the system is somewhat flawed as prices increase continually and have escalated by an average of 9% this year alone. This has brought the energy market into the political arena where it is quite blatantly being used for electioneering. In the 2006 report it was thought that price control should have been more stringent, according to Ofgem. To date, nothing much has changed. The energy business was divided into owners of networks and retailers. Network owners get paid for the use of their networks, whilst retailers sell energy to households and businesses, and because the retailers are in the public eye most of the focus has been placed upon them when it comes to rising energy costs.
As far as the Big Six Energy Companies is concerned, there is not much in the way of solid competition, which is the cause of inflated pricing, according to some critics of the system. The retailers are laying the blame for increases at the door of the government in the form of levies and taxes, and at the wholesale prices charged for imported fuels, as well as network fees for transportation which make up more than a third of increases in gas and electricity prices since 2007.
Networks have declined to comment on why they were prepared to pay a premium to the valuation of the network to a combined average of 27% which is indicative that the regulation is flawed and could need to be amended. Ofgem has pointed out that they have a good record for controlling network costs and have tried always to make a positive impact for consumers. Network owners have declined to comment on the inflated prices that have been paid for networks, but each time a piece of the network is sold off, it is at hugely inflated prices suggests a huge rate of return. This begs the question of whether Ofgem is allowing excessive transportation costs to retailers, which in the end has had consumers bearing the increases which they see on their bills every month.
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