Competitive Energy Markets ” Pros and Cons

Ofgem, the Office of Gas and Electricity Markets, examined the operations of the gas and electricity markets for eight months beginning in February 2008 for the purpose of determining the effectiveness of the energy suppliers ten-year-old competitive market and the level of service energy customers are receiving. Energy suppliers are under more scrutiny than usual because of todays extraordinarily high fuel prices.

For the most part, the transition to a competitive market has seen positive changes in the areas of lower energy costs, a larger selection of fuel programmes, and improved service to customers. Even though the measures taken thus far by the gas and electricity markets have appeared to gain favourable results, there are some areas of improvement that need to be accelerated in order to ensure the effectiveness of the competitive market and protect customers.

Most residential customers in Great Britain receive their gas and electricity service from The Big 6. There is no evidence that these large energy companies participate in a cartel, but the presence of The Big 6 does seem to restrict the development of new energy companies. While new energy businesses have emerged during the post-monopoly years, few have managed to remain, and only .03 percent of the gas and electricity customers currently use their services. With very few new energy businesses entering into the market, energy plans and programmes for customers are limited.

The competitive energy market allows small business and residential customers to change their gas and electricity suppliers. Almost 100% of gas and electricity customers reported that they knew there was an opportunity to switch energy suppliers, and 77% of customers that decided to exercise this option rated their experience as being satisfactory. Even though the vast majority of customers are aware of their option to switch energy suppliers, a mere 17% of these customers actually decide to switch.

Reasons for not electing to exercise this right include being uncertain of the outcome and not feeling confident in selecting the best plan. Since some customers do not have Internet access, they are not equipped to analyze the offered energy plans and make a decision to switch. These points indicate that a better system of conveying information to customers and an easier process for switching energy suppliers are needed.

Customers typically choose their gas and electricity suppliers because of the competitive prices offered by the suppliers. Some of the incentives available to small business and domestic customers are green energy packages, energy service deals, dual fuel packages, and price tariffs that are fixed or limited. Customers that are not on the gas main are not able to reap the benefits of dual fuel packages and usually pay higher prices for their energy. Low-price deals are enticing to customers, but only last a short time, and many customers do not understand that their energy prices will eventually increase.