David Prosser: Ofgem sends out mixed messages

Outlook: It is clear that at some companies, customers are paying the price for inefficiency and poor management

Conflicting signals from the folk at Ofgem yesterday, but then the energy regulator has never quite seemed to know where it stands on the question of whether customers are getting a fair deal.

Yes and no, the watchdog seems to be saying. On the one hand, the big six energy companies ought to cut their prices in the new year because margins have widened as the cost of wholesale gas has fallen. On the other hand, the suppliers will be allowed to raise electricity prices by more than Ofgem had previously suggested in order to pay for investment programmes.

The conflicting messages suggest that Ofgem hasn't quite got its head round its consumer protection duties. Last year, it reluctantly began an investigation into energy prices after ministers ordered it to do so, and then ordered the big six to disclose their business plans in public submissions – which gave the industry a golden opportunity to study each other's strategies and work out how small a price cut they could get away with. Indeed, you would call it a cartel had the situation been of the companies' own making.

What's particularly unfortunate about Ofgem's failure to coherently hold the industry to account is that even leaving aside the question of whether wholesale price cuts are being passed on or not, it is clear that at some companies, customers are paying the price for inefficiency and poor management.

The industry's own report on profit margins yesterday rebuffed calls for price cuts with claims that currently, some suppliers are barely breaking even. But if these businesses can't make money in the current benign trading environment, there is no hope for them, or the households they supply.

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