'Big six' energy firms face competition inquiry

 

Dermot Nolan, Ofgem: "No evidence of cartel, but weak competition"

Regulators will investigate whether the "big six" UK energy suppliers prevent effective competition in the UK energy market.

A report by regulator Ofgem has called for an investigation by the Competition and Markets Authority (CMA) which could take 18 months.

Centrica boss Sam Laidlaw said it would cause delays to investment and "an increasing risk" of blackouts.

The Ofgem report has criticised the effectiveness of competition.

It finds "possible tacit co-ordination" on the size and timing of price rises, but does not accuse the major energy firms of colluding over prices.

Start Quote

Now consumers are protected by our simpler, clearer and fairer reforms, we think a market investigation is in their long-term interests”

End Quote Dermot Nolan Ofgem chief executive

The BBC's Industry Correspondent John Moylan said the report also cited low levels of switching by consumers and the fact that the market shares of the big six suppliers had not changed significantly over time.

Richard Lloyd, executive director of the consumer group Which, said the regulator's report was effectively admitting that it had not done enough to regulate the market.

'Clear the air'

The big six - SSE, Scottish Power, Centrica, RWE Npower, E.On and EDF Energy - account for about 95% of the UK's energy supply market.

Ofgem is now referring the market to the CMA - the new competition body - "to consider once and for all whether there are further barriers to effective competition".

All the major energy companies have welcomed the referral.

But Sam Laidlaw, Centrica chief executive, said 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."

Energy Secretary Ed Davey: "This review will help clear the air"

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.

"What we are seeing in Britain is a big investment in energy.

"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."

Today Centrica confirmed it would not proceed with plans for a new gas-fired plant, due in large part to today's investigation being triggered.

Profit increases

Ofgem's report also says profit increases and recent price rises have intensified public distrust of suppliers and have also highlighted the need for a market investigation "to clear the air".

How much have energy bills ended up rising?

Supplier 2013 average bill cost 2014 average bill cost Average price increase

Source: Uswitch based on 3,200kwh of electricity consumption, and 13,500 kwh of gas. Dual fuel standard tariffs. Payment by cash or cheque on quarterly basis.

E.On

£1,226

£1,240

1.1%

EDF

£1,190

£1,237

3.9%

SSE

£1,211

£1,259

4.0%

Scottish Power

£1,230

£1,284

4.4%

British Gas

£1,191

£1,265

6.2%

Npower

£1,220

£1,299

6.5%

Average

£1,212

£1,264

4.3%

Dermot Nolan, Ofgem chief executive, said: "The CMA has powers, not available to Ofgem, to address any structural barriers that would undermine competition.

"Now consumers are protected by our simpler, clearer and fairer reforms, we think a market investigation is in their long-term interests. "

When asked on the Today Programme whether there would be a breakup of the six largest suppliers Mr Nolan said: "It's possible, (but) I couldn't guess what the Competition and Markets Authority will do".

Tim Yeo, Chairman of the Energy Select Committee said he thought a breakup of the companies was the most likely conclusion of the investigation. He said: "You could cut to the chase and say let's get on with it now.

Centrica boss Sam Laidlaw (l) and SSE boss Alistair Phillips-Davies give their views

"I think that would be the quickest way to restore confidence of consumers in the industry.

"I also think it would remove some of the risks of the lights going out, because investment could take place now."

The report comes a day after supplier SSE announced it was freezing prices until January 2016, putting pressure on rivals to do the same.

SSE whose companies include Swalec said the freeze would lower profits, but that it would "streamline" its business to cover the shortfall.

'Restore confidence'

The energy sector has been at the centre of strident political debate since last summer.

This began with Labour leader Ed Miliband's party conference speech, in which he pledged to freeze energy prices for 20 months if Labour were elected.

He also vowed to abolish the current energy regulator, Ofgem, and replace it with a new regulatory regime that ensured consumers got a "fair deal".

Caroline Flint fears inquiry will delay tougher action against energy firms

Caroline Flint, Labour's shadow energy secretary, asked for the investigation to include Ofgem itself and said: "Isn't today's decision a clear admission that Ofgem has failed to protect consumers?"

The road towards a full inquiry into competition in the market was announced by Ed Davey, the energy secretary, in February.

He wrote to regulators to say that the profit margins made by the six major energy suppliers in the UK were higher than previously thought.

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".

 

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  • rate this
    0

    Comment number 92.

    I don't quite get all the anger at energy companies. I pay approx. £70 per month for gas and electricity which doesn't seem too bad when compared to the £100 per month council tax.

    Costs are lower than most of Europe and their profit margins are far lower than most retailers yet you don't see people protesting outside M&S screaming 'we can't afford to clothe ourselves'.

  • rate this
    -15

    Comment number 90.

    This political move will, I fear, have major implications on all of us which will be much greater than the spin and scaremongering spewed from the left
    Blackouts will become more of a reality than before and the much needed investment into energy generation put on hold. Jobs and wealth production will be put on hold.
    Millibands time as Energy Sect. come to roust. He will blame the Tories

  • rate this
    +60

    Comment number 76.

    Increasing energy efficiency is a misnomer. The energy companies need to generate profit level X or above. If the consumer uses less energy due to efficiency, the energy companies have to raise prices to maintain profit levels. Face it folks you're stuck with high prices. The only real way to reduce prices is to remove the profit factor in the supply of energy.

  • rate this
    +3

    Comment number 70.

    Whilst I appreciate that energy costs impact significantly on household bills, we should not lose sight of the fact that our pension savings only grow because the pension funds can invest in profitable industries - the big 6 included! Any changes, whether voluntary or regulatory, need to be based on long term planning & impact, not short term gain.

  • rate this
    +134

    Comment number 45.

    In order to give customers true choice, a not for profit government supplier should also be set up to provide energy. I would buy my energy from it knowing I wasn’t paying shareholder dividends or fat cat boardroom salaries. And I would hope that the people who actually delivered the service got decent pay.

    Give us the freedom of choice!!

 

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