Mar 27

Ofgem triggers full inquiry of big 6 energy suppliers

The investigation is to be undertaken by the new Competition and Markets Authority (CMA) and may lead to the split-up of the big 6 energy suppliers by separating their supply arms, which sell power to households and business energy, and the generation units that own power stations.

The inquiry could take up to 2 years to complete but Ofgem warned of larger fines amounting to “10’s of millions of pounds” against power companies if they break rules in the meantime.

The investigation follows a growing outcry from consumers groups and politicians about rising costs and soaring fuel poverty which now afflicts 4.5 million people in the UK. Ofgem said dual fuel prices, where a customer takes gas and electricity from the same supplier, had gone up by 24 per cent between 2009 and 2013.

Dermot Nolan, who is the new CE of Ofgem, stated that the probe would “enhance confidence in the investment climate”.

He also 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.”

Ofgem stated that 43% of customers didn’t trust the energy companies to be clear and honest about prices, and that suppliers’ retail profits – from selling energy to households and business energy – had risen to £1.1bn in 2012 from £233m in 2009. Suppliers regularly set higher prices for existing consumers compared with those who have switched.

The suppliers – Centrica, SSE, RWE Npower, E.On, Scottish power and EDF Energy – control 95 per cent of the market for retail supply.

The regulator stated that is own review concluded that consumer trust had fallen and there was no clear evidence that companies had tried to cut their costs while retail bills had risen more than 4 times in 3 years.

A research document released by Liberum Capital concluded that the CMA probe would freeze additional expenditure by the large power companies and “dampen investment from those corporates not directly involved in the inquiry.”

Ofgem said there were “continuing uncertainties” about whether having retail and wholesale business energy under one roof was in customers’ best interests.