Big Six to face competition investigation

27 March 2014

Anti-competitive practices of the UK energy market that harm consumers should be investigated, its regulator has announced this morning.

Ofgem said falling levels of consumer trust and switching between providers "is not consistent with a competitive market".

Neither is the fact that the market shares of the Big Six suppliers have not changed significantly over time. The companies supply around 95% of the UK's energy and British Gas alone supplies 40% of gas.

The regulator added that while its assessment of the market – which has led to today's announcement – has not found evidence of explicit collusion between suppliers in fixing prices, "there is evidence of possible tacit coordination reflected in the timing and size of price announcements and new evidence that prices rise faster when costs rise than they reduce when costs fall".

It explained that while tacit coordination is not a breach competition law, "it reduces competition and worsens outcomes for consumers".

In 2009, the average annual dual fuel bill was £819 and by 2013 it was £1,350 – that's a 65% over five years.

Meanwhile, between 2009 and 2012, the Big Six's profits have increased from £3 billion in 2009 to £3.7 billion, said Ofgem.

It added: "While the evidence on profitability is not conclusive, the rise over the last few years allied to no clear evidence of increased efficiency is indicative of a possible lack of effective competition."

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Clearing the air

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.

He added: "Now consumers are protected by our simpler, clearer and fairer reforms, we think a market investigation is in their long-term interests.

"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. I am determined that energy companies use our reforms to transform their relationship with consumers."

In response to Ofgem's announcement, SSE - one of the Big Six - said: "SSE believes that the energy market in Great Britain is competitive, has brought significant benefits for customers, and that much has been done in recent years to make it more transparent and easier to understand, ranging from greater liquidity in the wholesale electricity market to simplification of tariffs in the retail markets."

It added: "Nevertheless, many of the key features of the energy market have become politically contentious and been subject to significant change designed to achieve a mixture of objectives. Ofgem states this morning that it believes a referral offers the opportunity 'once and for all' to clear the air."

However, the GMB - the union for energy workers - said a competition investigation is bad for consumers.  

Gary Smith, GMB national secretary for energy, said: "This will be bad for jobs in the UK, bad for investment and it will do nothing for consumers apart from maybe delay the relentless rise in energy bills until after an election. We are simply storing up much more pain for down the road.

"This is deigned to kick the issue down the road until after the next election. The country is in the midst of an energy crisis. Energy bills are going to keep going up. Households will struggle to pay their bills and British industry is losing competitiveness." 

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