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Promoting or restricting competition?: Regulation of the UK retail residential energy market since 2008

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  • Stephen Littlechild

    () (University of Birmingham; Judge Business School, University of Cambridge)

Abstract

Since 2008 UK energy regulator Ofgem has imposed increasingly severe restrictions on suppliers to the domestic (residential) retail market. Initially, non-discrimination conditions aimed to “remove unfair price differentials”, particularly between suppliers’ prices between regions, totalling £0.5 bn. This actually envisaged increasing prices to other customers by £0.5 billion, to maintain revenue neutrality. In the event, competition reduced, customer switching fell by half, and profits of major suppliers increased by nearly £1 billion, at the expense of customers. Later, restrictions on the number and types of tariffs aimed to encourage customers to engage in the market. However, there is no empirical evidence to justify this, and the policy prohibits many discounts and tariff types that customers value, especially vulnerable customers. Perhaps Ofgem felt pressed to Do Something in the face of an unprecedented increase in energy prices. Successive Governments have supported its interventions, but cannot be blamed for designing them. The decline of economists in senior positions at Ofgem removed an important ‘sanity check’. But Ofgem itself bears responsibility for its change in policy since 2008. It may have been well-meaning, attempting to protect the interests of vulnerable customers, but inappropriate restrictions have made customers worse off. Should other regulators follow suit? No. Hopefully the CMA market investigation will reveal this and bring to an end one of the most misguided episodes in the modern history of UK regulation.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Stephen Littlechild, 2014. "Promoting or restricting competition?: Regulation of the UK retail residential energy market since 2008," Working Papers EPRG 1415, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
  • Handle: RePEc:enp:wpaper:eprg1415
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    Citations

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    Cited by:

    1. Simshauser, Paul, 2018. "Price discrimination and the modes of failure in deregulated retail electricity markets," Energy Economics, Elsevier, vol. 75(C), pages 54-70.
    2. Simshauser, P., 2019. "Lessons from Australia’s National Electricity Market 1998-2018: the strengths and weaknesses of the reform experience," Cambridge Working Papers in Economics 1972, Faculty of Economics, University of Cambridge.
    3. repec:eee:jaitra:v:67:y:2018:i:c:p:211-223 is not listed on IDEAS
    4. repec:eee:eneeco:v:71:y:2018:i:c:p:321-331 is not listed on IDEAS
    5. repec:eee:aosoci:v:70:y:2018:i:c:p:16-32 is not listed on IDEAS
    6. Mulder, M. & Willems, Bert, 2016. "Competition in Retail Electricity Markets : An Assessment of Ten Years Dutch Experience," Discussion Paper 2016-011, Tilburg University, Tilburg Law and Economic Center.
    7. Simshauser, Paul & Whish-Wilson, Patrick, 2017. "Price discrimination in Australia's retail electricity markets: An analysis of Victoria & Southeast Queensland," Energy Economics, Elsevier, vol. 62(C), pages 92-103.

    More about this item

    Keywords

    retail competition; energy regulation; non-discrimination;

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L97 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Utilities: General
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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