Ofgem still believes that the interests of energy users are best served by a competitive free market, not enforced price controls. But its threat to do so is serious and represents a profound change in its approach.
Until 2008, when it reluctantly launched its Market Probe – after a front-page in The Independent on British Gas's bumper profits infuriated the then Chancellor of the Exchequer, Gordon Brown – Ofgem had a strong philosophical bias in favour of an unfettered free market. Essentially, it saw its job as providing the regulatory tools for suppliers to innovate and compete their way to the market perfection of economic theory.
But it started to lose faith during the 2008 investigation, when it caught the firms siphoning off £500m a year in excess profits. Over the ensuing three years Ofgem introduced minor reforms, such as advice on clearer bills and an annual energy statement for every household. But the big firms have failed to embrace their spirit. Tariffs are still bewilderingly complex and bills deliberately badly-designed.
Ofgem's patience has now run out. Its consultation on simpler prices ends on Wednesday. If the companies agree to the introduction of a uniform standing charge (fixed by Ofgem) and a simple two tariff approach, allowing consumers to compare which company is cheapest, they will escape a Competition Commission probe. If they don't, Ofgem is willing to cap prices. Millions of households who struggle to heat their homes will welcome its tougher stance.