Ofgem confirms full energy market investigation
British households may be paying too much for energy, according to regulator Ofgem. The energy sector has been referred to the Competition and Markets Authority (CMA). The investigation could take between 18 and 24 months.
Ofgem proposed that the CMA investigate the market to consider "once and for all" whether there are barriers to effective competition.
The regulator promised it would continue to take action to protect consumers including increased penalties for companies that break the rules.
CEO of energy giant Centrica Sam Laidlaw, responded to the announcement on Radio 4's Today programme "If we have this inquiry and it re-establishes trust in the sector, that can only be good."
However, he warned that there would be an "increasing risk" of competition as a result of the probe. Centrica said in a statement UK retail energy prices were the lowest in Europe and that British Gas retail margins in 2013 were just 4.5 per cent.
The regulator highlighted the fact that 43 per cent of consumers distrust the energy companies to be open and transparent. Ofgem said there was no evidence that the increase in retail profits from £233m in 2009 to £1.1bn in 2012 had lead to increased efficiency.
However, the watchdog said further evidence was needed to determine whether the companies have had the opportunity to earn excess profits.
The independent institutional stockbroking and investment banking business said "we continue to believe that the unpalatable price increases that have been seen in recent years are, unfortunately ultimately justified, as they largely reflect external market pressures."
Online comparison service uSwitch welcomed the investigation, with director of consumer policy Ann Robinson commenting "it is clear from the evidence we have seen that competition is not working well enough."
Energy firm SSE said it believes the energy market in Britain is competitive and noted that it had invested £7bn in the last five years. Chief executive Alistair Philip-Davies said of the referral "We welcome any efforts to clear the air, and in the meantime SSE will continue with its positive agenda for customers including its price freeze until at least, 2016."
Dermot Nolan, Ofgem chief executive, 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.
The six largest energy companies occupy 95 per cent of the market.
The confirmation comes only one day after energy company SSE announced it would freeze its domestic gas and electricity prices at their current levels until January 2016.
Dr Adam Marshall, executive director of policy at the British Chambers of Commerce (BCC) warned that a politicisation of the energy market review should be avoided and that there should be more transparency surrounding the costs incurred by energy suppliers. "Competition must remain at the heart of this debate – not political point-scoring or rival claims over energy price freezes" said Marshall.