Ofgem to unveil biggest ever energy sector investigation

'Big six' power firms could see businesses broken up at end of 18-month inquiry into claims of collusion and profiteering


The biggest ever investigation into the UK energy market will be unveiled next week by the industry watchdog, Ofgem, amid public anger over high bills and bad service from gas and electricity providers. An 18-month inquiry into claims of collusion and profiteering will be undertaken by the Competition and Markets Authority (CMA) and could end in the big six firms having their businesses broken up and reduced in scale.


Energy has risen up the public and political agenda over the past eight months since Ed Miliband promised that an incoming Labor government would freeze prices, scrap the regulator and force large companies to sell off assets. Ofgem is preparing to start the investigation but will not formally announce it until the end of next week.


Caroline Flint, the shadow energy and climate change secretary, said she welcomed the additional resources and support the CMA could provide to establish why overcharging, mis-selling and poor customer service had been allowed to go on for so long.


"Just in the last week we've learnt that wholesale prices have fallen substantially this year and yet consumers have seen no reduction to their bills," she said. "This investigation must address problems like this and stop them happening again in the future.


"However, it shouldn't paralyse politicians from taking action now to improve the lack of competition and weak regulation in the energy market, which has resulted in customers getting a poor deal."


At the start of June gas prices for next-day delivery reached their lowest level since September 2010 and were 38% lower than the same time last year, Ofgem has noted. Prices for electricity reached their lowest level since April 2010, and were 23% lower than June 2013.


Despite this, the regulator said suppliers including SSE, EDF Energy, Scottish Power, E.ON, npower and British Gas were showing no signs of reducing prices, or explaining to customers why not.


Which? said energy firms should not wait for an investigation before changing their ways. The consumer group's executive director, Richard Lloyd, said: "With almost daily reports of poor performance by energy suppliers and falling wholesale prices still failing to be reflected in consumers' bills, a full competition inquiry is the right way to have an authoritative, independent review into how the energy market fails to work in the interest of consumers.


"If an inquiry is to genuinely help to rebuild consumer trust and inject more competition into the market we need to see substantial proposals that will fix the big six. Suppliers that want to do the right thing shouldn't wait for the outcome of the competition authority's work to change their ways."


Ofgem noted in March, after a preliminary review of the sector, that the biggest six firms – Centrica , SSE, RWE npower, E.ON, Scottish Power and EDF Energy – had seen their profits rise from £233m in 2009 to more than £1bn by 2012.


The formal investigation could recommend that individual big six members separate their units that generate power from those units that sell it to households to try to make inroads into their 95% market share.


Ofgem, alongside the CMA and the Office of Fair Trading, found evidence of "possible tacit coordination" in the timing and size of price increases. The watchdog has consulted the industry on its initial findings and promised to make a final decision on whether to instigate a full inquiry by the summer.


The referral to the CMA is a blow to the energy firms, which have already seen their share prices hit hard in anticipation of the ground rules changing in future. In public they have welcomed an inquiry because they believe they will be exonerated of any accusations of profiteering or non-competitive actions.


Alistair Phillips-Davies, boss of SSE, said: "Regulators, politicians, customers and SSE all want the same thing: an energy market that not only works for customers, but is also trusted and seen to do so. We welcome any efforts to clear the air.".


Sam Laidlaw, the chief executive of Centrica, which owns British Gas, has made similar comments but warned that an inquiry would freeze much-needed investment in energy plants for its duration.


Ofgem, which appointed Dermot Nolan as chief executive this year, refused to comment on any referral to the CMA but has in recent weeks shown its resolve to become tougher on the companies it oversees, with the launch of several initiatives. The CMA also declined to comment on the likelihood of an investigation but confirmed it would be able to demand that divestment were made, although it cannot fine companies under market referral rules.


This week Which? revealed there had been 1.7m complaints about the big six in the first three months of 2014. Meanwhile Ofgem warned n power it would force the firm to dismantle its telesales team unless it improved its customer performance. It also launched a new investigation into the company's prolonged billing problems.


- theguardian.com