'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
    +3

    Comment number 100.

    When I think of Ofgem, I think of this quote from Startrek
    "You're like a toothless old Grishnar cat trying to frighten us with your roar."
    That's what Ofgem is, lots of roaring and chest beating, but no action.
    No wonder the energy companies never change and they never will.

  • rate this
    +3

    Comment number 99.

    9. Saltway Sweeper
    21 MINUTES AGO
    Ofgem the Tootless tiger, roars but never bites.

    I think there was a Katy Perry song with that line in it.

  • rate this
    0

    Comment number 98.

    We would not have had this problem if the Tories under Thatcher and Major had not privateised the Electrical Generation and Supply Industry.
    Tory incompetence as usual.

  • rate this
    +3

    Comment number 97.

    Typical UK - you want an excellent NHS but don't want to pay for it. You want cheaper energy even though it's among the cheapest in Europe. You don't want immigrants taking the jobs you can't be bothered to do yourselves.

    Time you all grew up.

  • rate this
    +1

    Comment number 96.

    I can't understand why people "switch" energy companies. Where are they saving money? To my mind, they are all the same.

  • rate this
    +2

    Comment number 95.

    People seem to be crying out for regulation of the energy industry's prices because regulation means common sense and justice prevailing over corporate greed.

    YET, the government are continually harking on about wanting to get rid of what they call "red tape" (aka. regulation)

    Are peoples' interests at odds with government dogma?

  • rate this
    +4

    Comment number 94.

    So predictable - The regulators find no evidence of price fixing whatsoever blah blah and then will try and deflect public suspicion by banging on about making it easier to switch. So utterly predictable. Yet we keep hearing about record profits in the billions year after year.

  • rate this
    +17

    Comment number 93.

    What competition are they talking about?

    Its a CARTEL plain & simple..

    The collusion is so endemic they may as well be one company!!!

  • 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
    +1

    Comment number 91.

    More highly paid jobs for political hacks that will take years to report & then will be totally ineffectual. Scrap it & use the money saved to subsidise bills.

  • 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
    +5

    Comment number 89.

    51.
    arltunstall
    .. The government should set aside money for investing in the infrastructure and development of the industry through cutting overseas aid...
    Why should the taxpayer have to effectively subsidize private companies who were gifted Public assets and then failed to invest in new plant? They have had over 40 years to do something but chose not to. No more public funded bailouts.

  • rate this
    0

    Comment number 88.

    @63
    Burning ethanol in oxygen creates CO2 (greenhouse gas) and water.
    Burning hydrogen in oxygen produces water
    Burning ethanol in hydrogen will likely produce methane (even worse greenhouse gas) and water (and probably some CO2)
    Only one of your options sounds clean to me.

  • rate this
    +4

    Comment number 87.

    Is this the third or the fourth time in the past decade that the question of whether energy companies operate a de facto cartel has been asked? Does having lengthy enquiries which draw no firm conclusions (but plenty of threats from the big players) allow the decision makers to put off doing anything about it? Surely not.

  • rate this
    +3

    Comment number 86.

    The big 4 supermarkets made £4.2bn between them last year with a 4.5% average profit margin.

    When will Ed Miliband order a price freeze on bagels and fish fingers?

    Like it or not, we have among the lowest energy prices in the UK and anyone can freeze their bill for 1 to 3 years with a fixed tariff.

  • rate this
    -1

    Comment number 85.

    The only problem with is is the time. I don't agree with a freeze on prices as who will tell them what price and all they do will put the prices up until the price freeze is in force. We need to invest but also be more transparent. Maybe that what we should be concentrating on that now?

  • rate this
    +2

    Comment number 84.

    Many "competitive" organisations work in cooperation on occasions- often to the consumer's cost. For example, my two local stores- Tesco Local and COOP- chose exactly the same week to refurbish their stores. Resulting in my having to take my car to an out of town Sainsburys for my weekly shopping. They did this so that neither store would lose custom. Did they arrange this together- I don't know?

  • rate this
    +18

    Comment number 83.

    Privatisation... Its wonderful for the political elite and their friends.

  • rate this
    +14

    Comment number 82.

    just where will it all end? the whole country's corrupt from the top down. we are merely pawns in a massive fraud!!

  • rate this
    +3

    Comment number 81.

    Easy way of creating more competition in UK energy is to buy back into public ownership.

    I do not mean nationalise, as thats non affordable.

    The £hundreds of billions WE consumers & taxpayers fund/pay for new powerstations & windfarms, could be used to BUY some of it, the new bits we are paying for & it will not cost a penny more because through ownership we benefit NOT paying shareholders

 

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