When the nationalised industries were privatised the idea was to move from state monopoly to a competitive market where the consumer got a better deal. What we got in a lot of cases was either private monopolies or strong oligopolies with high barriers to entry.
Ofgem are trying to improve the situation by forcing the 'big six' energy companies to auction off some of the electricity they generate to allow new entrants into the market.
However this week a number of the big six announced price cuts. Does this mean the fear of new entrants is forcing them to act (a contestable market)? Ofgem would be delighted if this were true. But this behaviour is consistent with oligopolist's profit maximising behaviour.
The warmish winter means spot market prices for energy are lower this year than the last two years. With lower than expected costs one firm moves price down to gain market share. The others lower prices to match them to protect their market share. The kinked demand curve model and game theory would both predict this move.
Ofgem may have preferred the prices to be lowered through the threat of competition but if their main priority is to achieve low prices this is still a success in some sense of the word as consumers are still left better off. Although I see that the advantages of privatization maybe it would be a good idea to have one state company amongst the larger companies (possibly buy one of them out) to ensure prices are set at the right level. This may be expensive to set up and have similar effects to tight regulations but it may be a more modern way for the government to be involved in such an important market.
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