'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
    +4

    Comment number 80.

    Time to kick these energy terrorists out - with their veiled threats of ' let us get our way unless you want the lights to go out'

    Scumbags of the highest order.

  • rate this
    -22

    Comment number 79.

    Energy wouldn't be so expensive if we didn't throw money at windmills.

  • rate this
    0

    Comment number 78.

    "Independent" too often means, "available to any high bidder". You know... like in "Independent financial advisor" who proceed to sell you whatever has the highest kickback, sorry "commission", for the "independent" advisor.

    Follow The Money. Whenever you follow the money you realise why we've been boned for years and will remain always boned. There is no escape from this shackle.

  • rate this
    +1

    Comment number 77.

    The profit margin is less than Tesco and most supermarkets, does this not scream of over reaction and/or smoke screen for politicians

  • 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 75.

    Oh dear, looks like the energy cartel has been caught with their pants down. ED was right.
    What will the ol' boy network do? Easy, have an inquiry that will last until they have moved their money and it has all blown over.
    Pity Couson is not there to spin a good out come lol.

  • rate this
    0

    Comment number 74.

    It may be better to compare other goods. When you want to buy anything the prices rarely vary by much at all. Everyone is at it. So much so there is a drive now to be the only seller of an item. We will buy this from you but only if no one else has it. That is how they avoid competition at selling. Energy cannot use this device, cheat. Most selling only competes at buying, not cutting their cost.

  • rate this
    +2

    Comment number 73.

    The energy companies are involved in a big game of poker - each waiting for the other to flinch. As prices go up, so they can afford more, the market responds by acknowledging this, which raises prices further. The nett result is that oil barons get fatter where oil and gas spurt out of the ground. One solution is to develop renewable energy sources relentlessly to get ourselves out of this loop.

  • rate this
    +61

    Comment number 72.

    it takes Russia two weeks to hold a referendum in the crimea with a forgone result
    why on earth is it going to take two years to investigate a cartel in Britain

  • rate this
    +1

    Comment number 71.

    OFGEM have already investigated them and found them all colluding in profiteering. Why another investiugation - Govt stalling for time to keep pals in the city loaded with bonuses? There was a time when Govt supplied All energy. They still made a profit but the 'service' for 'people' was very high and cheap. Now the service is poor & v expensive. Stop the billionaires. Nationalise them now.

  • 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
    0

    Comment number 69.

    I’ve just had an ‘Online Chat’ with SSE, asking when I will get the £50 Government Green Tariff reduction. They say that as I’m on a Fixed Tariff I will not get the money.

    How can that be fair?

  • rate this
    -1

    Comment number 68.

    Great news !
    The government gave the insurance companies loads of chances to buck up their ideas on the pension front, but they didn't take a blind bit of notice.....and now the energy sector have bought this upon themselves!

  • rate this
    +3

    Comment number 67.

    The country has a choice, let companies make a reasonable return on capital, or let the lights go out. Pay for power stations costing a few billion that last 40+ years or return to living in mud huts and caves. No amount of bodging with wind turbines and solar panels will keep the lights on. Sadly neither the coalition or the opposition have yet grasped the fundamental issue of energy security.

  • rate this
    +4

    Comment number 66.

    There should be a regulator for overblown pre election hype and sound bites from politicians that try to reel in the gullible and feeble minded. I suggest this regulator is called OFFSWITCH. I for one would subscribe as I am already sick of all this old tosh.

  • rate this
    +3

    Comment number 65.

    Anyone who voted for the privatisation of Utilities got what came to them in terms of their energy costs. Trouble is, those of us who didn't vote for privatisation of utilities came off worse regardless.

    Those households who have solar panels (and can afford them by whatever means), they are the only winners on this issue.

  • rate this
    +1

    Comment number 64.

    Any changes made will someway be in the favor of the big 6 just the same way as when they were told to simplify tariffs.

    There are now no "Zero Standing Charge Tariffs" offered by the big 6 and as the only appliance in my flat that uses gas is the hob, my gas bill will now jump from £10 p/a to £115 p/a.

    FYI Ebico works out lot more on electric so that's not a viable option for me either.

  • rate this
    +2

    Comment number 63.

    energy that pollutes must be taxed out of existence: like diesel.
    Ethanol and hydrogen is the way to go.

  • rate this
    0

    Comment number 62.

    The average Joe on the street, politicians and media have little to zero understanding of how the energy market actually works. The big 6 energy companies will welcome this and have called for this enquiry stating that they don't have anything to hide. However, if a group of experts conclude that there is no anti-competitive behaviour I'm sure it won't do anything to appease the above people.

  • rate this
    +1

    Comment number 61.

    If this was anyone other than Ofgem, I'd have some small hope that something meaningful would be done about what is quite clearly, a cartel.

    Unfortunately, they appear to be mostly toothless.

 

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