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Ofgem proposes CMA investigation into the energy market
In an effort to remove uncertainty from the UK energy market Ofgem has proposed that the market be investigated by the Competition and Markets Authority (CMA). ‘Profit increases and recent price rises have intensified public distrust of suppliers and highlight the need for a market investigation to clear the air,’ says the regulator.
Such an investigation would allow the CMA to ensure that there are no further barriers to effective competition, says Ofgem, and to reassure consumers. It would also complement Ofgem’s reforms for a simpler, clearer and fairer energy market.
Meanwhile, the State of the Market assessment, prepared in March jointly with the Office of Fair Trading (OFT) and the CMA, confirms its previous analysis of why competition is not working as well as it could, says the regulator. As well as reinforcing concerns about barriers to entry for independent suppliers and persistent high market shares of the largest energy companies, the report shows:
· declining consumer confidence, with 43% distrusting energy companies to be open and transparent;
· continuing uncertainty over whether the vertical integration of the large energy companies is in consumers’ interests;
· retail profits increasing from £233mn in 2009 to £1.1bn in 2012, with no clear evidence of suppliers becoming more efficient in reducing their own costs; and
· suppliers consistently setting higher prices for consumers who have not switched.
Given these problems, Ofgem believes a referral to the CMA is timely and necessary, because the CMA’s more extensive powers can address any long-term structural barriers to competition. Also:
· A market investigation would conclusively determine whether vertical integration is in consumers’ interests or whether there should be more separation between the largest companies’ supply businesses and generation arms.
· Ofgem’s reforms for a simpler, clearer, and fairer market have created a safer space for consumers to shop around for a better energy deal while a CMA investigation takes place.
· Major change is coming with the roll-out of smart meters. A CMA investigation will ensure that there are no further barriers that prevent consumers from making the most of the transformation smart meters will bring to the energy market.
Secretary of State for Energy and Climate Change, Ed Davey said: ‘This is tough action based on a detailed, independent expert assessment of the state of competition in Britain’s energy markets – leading to the first ever market reference for the energy markets. This is just too important for people to rely on guesses about how to fix the energy markets. If we get it wrong, consumers will pay the price.’
Dale Vince, founder of one of the smaller energy suppliers, Ecotricity, was more forceful: ‘It's taken three months for Ofgem to decide that we need a two year competition inquiry, 20 years after privatisation. At privatisation there were 12 companies with 100% market share between them, today there are six companies who’ve got 98% of the market. The fact that there's something wrong is plain enough, and has been for some time.’
News Item details
Journal title: Energy World
Countries: UK -
Organisation: Ofgem
Subjects: Economics, business and commerce, Electricity, Oil and gas
