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Ofgem Refers the Energy Market for a Full Competition Investigation

07 Jul 2014

Ofgem has referred the energy market to the Competition and Markets Authority (CMA) for a full investigation. This follows on from Ofgem’s proposal in March and the following consultation. An investigation should ensure, once and for all, that competition works effectively for consumers, by bearing down on prices while driving improvements in customer service and innovation. It will also help provide the confidence that is needed for investment in the energy sector and complement Ofgem’s recent reforms to make the market simpler, clearer and fairer for consumers.

The recent assessment of the energy market, prepared by Ofgem with the Office of Fair Trading (OFT) and CMA, showed that competition isn’t working as well as it should for consumers. It showed increasing distrust of energy suppliers, uncertainty about the relationship between the supply businesses and the generation arms of the six largest suppliers, and rising profits with no clear evidence of suppliers reducing their own costs or becoming better at meeting customer expectations.

Dermot Nolan, Ofgem Chief Executive, said:
“Now is the right time to refer the energy market to the CMA for the benefit of consumers. There is near-unanimous support for a referral and the CMA investigation offers an important opportunity to clear the air. This will help rebuild consumer trust and confidence in the energy market as well as provide the certainty investors have called for.

“The energy market is also going to change rapidly over the next few years with the roll-out of smart meters, the government’s electricity market reforms, and closer integration with European energy markets. A CMA investigation should ensure there are no barriers to stop effective competition bearing down on prices and delivering the benefits of these changes to consumers.”

As well as playing a full role assisting the CMA, Ofgem will continue its work to protect consumers. These include pushing forward on next-day switching, improving the support available for vulnerable consumers in finding the best energy deal, developing new rules for brokers to follow in the non-domestic market, and continuing to ensure that consumers make the most of recent reforms to make the market simpler, clearer and fairer.

The CMA will begin its investigation immediately and is likely to publish final decisions by the end of 2015. The CMA can decide which features of the market to focus on in its investigation and use its powers to address any structural and behavioural issues that would undermine competition. Ofgem would fully expect the CMA to consider the action it has taken to intensify competition and protect consumers. The main areas that Ofgem would also expect the CMA to look at include:

  • the relationship between the supply businesses and generation arms of the six largest suppliers
  • barriers to entry and expansion for suppliers
  • the profitability of the six largest suppliers
  • whether or not there is sufficient competition between the large energy suppliers
  • the trend of suppliers consistently setting higher prices for consumers who have not switched
  • low consumer engagement that contributes to weak competitive pressure in the market

Story appears courtesy of Ofgem.