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UK competition watchdog to investigate UK’s Big Six energy companies

27 March 2014

UK energy regulator Ofgem has asked the Competition and Markets Authority (CMA) to rule on whether the Big Six energy suppliers' rises in prices and profits were due to lack of competition. This follows a report by the regulator which found "possible tacit co-ordination" on the size and timing of price rises, but did not accuse the major energy firms of colluding over prices.

The suppliers – Centrica (which owns British Gas), SSE, RWE npower, E.ON, Scottish Power and EDF Energy – control 95% of the UK market for retail supply. Their retail profits rose to £1.1bn in 2012 from £233m in 2009.

The regulator said its own review had found that consumer trust had fallen and there was no clear evidence that companies had tried to cut their costs while retail bills more than quadrupled in three years.

In February the Energy Secretary, Ed Davey, called for an inquiry into gas prices and suggested the big suppliers could be broken up.

The Labour leader, Ed Miliband, said in September that he would freeze prices for 20 months and overhaul the market if Labour wins next year's election. He also called for Ofgem to be replaced by a more effective regulator.

Dermot Nolan, Ofgem's chief executive, said: "Ofgem believes a referral offers the opportunity to once and for all clear the air and decide if there are any further barriers which are preventing competition from bearing down as hard as possible on prices.

"I want to make sure that consumers are put at the heart of this market, so we will continue to take action to help consumers. This includes from today putting the industry on notice that any new serious breach of the rules which comes to light will be likely to attract a higher penalty from Ofgem."

The industry has lobbied hard against a price freeze, arguing that such a move would make its retail businesses uneconomic, threaten energy shortages and deter investment.

But on March 26, the UK's second-biggest provider SSE said it would not increase prices for its five million customers until 2016. The utility said the freeze would lower profits, but it would streamline its business to cover the shortfall, including cutting 500 jobs and shelving four planned offshore wind farm developments.

SSE also announced it would be separating its retail and wholesale businesses by 2015 to increase transparency. Ofgem said earlier there were "continuing uncertainties" about whether having retail and wholesale businesses under one roof was in customers' best interests.

Sam Laidlaw, chief executive of Centrica, said in an interview he hoped "a lengthy review process will not damage confidence in the market, when over £100bn of investment in new infrastructure is needed".

When questioned on the BBC Radio 4's Today programme over whether it would mean power outages he said: "There is an increasing risk. A lot can be done in terms of demand management, but actually building a new gas power station does take four years. So that's the kind of time pressure we are up against, by adding another two years that makes it six years."

However, the Energy Secretary, Ed Davey said: "He is absolutely, totally wrong and I can prove it. We have 14 contracts for power generation [in the pipeline] over the next 15 years. It is true that companies like Centrica are not investing as much as we might like them to but we are seeing independent energy generation firms like Siemens coming in in their place."

E.On UK chief executive Tony Cocker has now said an investigation was the only way "to restore full public confidence to the energy sector and depoliticise the whole issue".

Ofgem's request to the CMA is subject to a two-month consultation period to let the industry and interested groups have their say.

 


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