Leading article: What price deregulated energy?

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The Independent Online

As prices of household energy soared, suppliers had a ready explanation. It was all to do with world market prices. So the not unreasonable assumption made by consumers was that, if prices of household gas and electricity followed wholesale energy prices up, then they could follow them down as well.

As emerges clearly from the figures we publish today, this hope was vain. Deep down, we probably always knew that any reductions, if they came at all, would be rather slower to take effect than the increases, and of a rather more modest order. But the advice was to compare prices, switch suppliers if necessary, and trust the regulator, Ofgem, to look after our interests.

But it seems this is not enough. Household energy costs rose by 42 per cent last year, to an average of £1,293, after oil prices reached $140 a barrel. The oil price now stands at $70, after falling as low as $40 a barrel. So far, though, nothing like this reduction is reflected in domestic energy bills. The watchdog, Consumer Focus, says that prices should be falling far more quickly, and concludes that the difference is being pocketed by the energy companies. It says that Ofgem is not doing its job.

The Energy Retail Association contests this – it would, wouldn't it? – arguing that other elements, such as higher transport costs, have been omitted. And the effective devaluation of the pound against the dollar will also have kept prices higher than they might otherwise have been – although the value of the pound has risen in recent months. But the discrepancy will still look enormous to most consumers. Nor does competition seem to have done much to keep down prices. Tariffs remain much of a muchness; energy companies' profits have ballooned.

So far, the brave new world of energy deregulation has not had anything like the beneficial effect for consumers that we, and surely the Government, hoped. The watchdog's verdict is that "the companies are pocketing £1.6bn extra, while millions of households struggle to make ends meet". It is right to insist that the energy companies take immediate action. Without it, the whole concept of utilities deregulation risks being discredited.