'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".

 

More on This Story

Related Stories

The BBC is not responsible for the content of external Internet sites

Comments

This entry is now closed for comments

Jump to comments pagination
 
  • rate this
    0

    Comment number 60.

    and just how many people will have frozen or starved to death due to high energy bills by the time this report comes out and will it be like the Hutton report varied to suit the Tory Grandees. Don't hold your breath people customers like voters only matter at election time!

  • rate this
    +2

    Comment number 59.

    It's pretty obvious what the report findings will be:

    The big 6 put their prices up or down at the same time and at around the same rates while charging exorbitant rates and making obscene profits but - strangely enough - there's no collusion or any reason to change the system.

    There you go, Ofgem, I'll only charge you 50% of whatever your designated agency is charging for that one.

  • rate this
    +10

    Comment number 58.

    What is the point of a competition enquiry that will take 2 years ?

    We need cheaper energy NOW.

  • rate this
    +2

    Comment number 57.

    Have to agree with others' comments; this is more likely just for show.

    If the powers that be can tolerate the pay day lending which is illegal in most other nations, zero hour contracts, Atos..I hardly think profiteering power companies are much of an issue to them, even if it's blatant theft to the rest of us.

    But, to keep the minions happy in our "democracy", a show trial, then business a.u.

  • rate this
    -1

    Comment number 56.

    This has been such a blatant example of profiteering it beggars belief that anyone can claim they are not rigging the market with a straight face. Still, I suppose all the big pay cheques help.

  • rate this
    +1

    Comment number 55.

    33. Cheddar George
    That costs money, what we need is to start a publically owned power company run as not for profit and watch the for profit companies wither and die when they can't compete"

    While that wouldn't be a bad idea, I think it's a huge assumption that it would be cheaper than the private companies and that the customer service would be better. History tends to suggest otherwise.

  • rate this
    +5

    Comment number 54.

    Britain has some of the cheapest energy in Europe, just as well...

    "Britain has among the worst-insulated homes in Europe. This country is second only to Estonia for fuel poverty due to appalling standards of energy efficiency.
    A third of all UK homes (6.7 million) are rated E or worse on their energy performance certificate, meaning they have a poor standard of energy efficiency."

  • rate this
    +2

    Comment number 53.

    place a generator above / within parliament there is plenty of hot air spouted there, which is currently wasted.

    Also why would the government challenge the energy companies? After-all, they are owned by the institutions/banks that at the same time lend money to the government & offer jobs to the boys once they leave govt & and were/continue to be bailed out by the taxpayer.

  • rate this
    +1

    Comment number 52.

    6th October 2008 report from OFGEM stated 'The Big 6
    suppliers are acting competitively and we have found no evidence of cartels'. Let's go round again!

  • rate this
    -1

    Comment number 51.

    Energy should be run so that it breaks even and deilvers value to consumers not allow people to be connedsumers by force.

    The 'big 6' or rather the 'crooked 6' should be run in the interests of their customers, not their shareholders. The government should set aside money for investing in the infrastructure and development of the industry through cutting overseas aid. That's my view.

  • rate this
    +2

    Comment number 50.

    Pure public relations. There are more energy companies than supermarkets, mobile phone providers, or banks.

    The real issue is being able to compare prices easily and realistically. That should start with fixed dates for all to set prices per year or half year.

    Energy is not that expensive, and best of all you can control how much you use. It is no big issue.

  • rate this
    +28

    Comment number 49.

    This enquiry will not be complete until Jan 2016.

    Typical, just typical.

  • rate this
    +1

    Comment number 48.

    19 Choobs
    "Every other company makes a profit. Why not them?
    It is not a discretionary product.
    Compare their increases over a ten year period with earnings.
    You can die if your not warm enough due to being poor.
    25 Arcane
    "Buy solar panels and let the big 6 buy from you"
    Most people who have solar are not poor,so can afford to pay for installation and play the long game,quite often the rich save

  • rate this
    +81

    Comment number 47.

    .


    Is there any once state owned industry that, having been privatised, hasn't involved all of the following:


    Higher bills for comsumers...


    Higher bills for the tax payer...


    Reduced quality of service...


    More billing "mistakes"...


    Fat payouts for shareholders & directors...


    Ineffective regulators...


    Large payments by owners/directors to Tory Party funds...
    .

  • rate this
    +2

    Comment number 46.

    Quelle suprise...first thing that happens is one of them pops up hinting at power cuts..They do and have taken us for a ride but we arn`t stupid and recognise a vested interest when we see it. Obviously this enquiry is both needed and overdue

  • 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!!

  • rate this
    +4

    Comment number 44.

    “Regulators will investigate whether the "big six" UK energy suppliers prevent effective competition in the UK energy market.”
    ………And, following this, they will launch a detailed enquiry as to whether bears poo in the woods.

  • rate this
    +12

    Comment number 43.

    Why has it taken so long? Is there a cartel? Its like asking if a certain large furry animal does its business in the woods! If price fixing is found then will the government launch a "if you see Sid, tell him to sue them" advert?

  • rate this
    +4

    Comment number 42.

    The threat that they will not build necessary power stations shows just have badly these companies are managing things.

  • rate this
    +25

    Comment number 41.

    Why isn't there an equivalent regulatory body (i.e., something which has teeth) for investment bankers?


    .

 

Page 39 of 41

 

More Business stories

RSS

Features

From BBC Capital

Programmes

  • Three men solving a puzzleThe Travel Show Watch

    Why tourists are heading to Budapest for the chance to break out of a room

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.