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[June 27, 2014]
Energy giants to face competition inquiry: Big six suppliers could face being broken up: Rising profits but no signs of efficiency savings
(Guardian (UK) Via Acquire Media NewsEdge) The energy watchdog, Ofgem, fired the starting gun yesterday on the biggest investigation yet into the energy market by referring the much-criticised power industry to the Competition and Markets Authority (CMA).
The big six suppliers will be under the spotlight for the next 18 months as the CMA looks at whether British Gas, SSE and others have been profiteering and should be broken up.
"Now is the right time to refer the energy market to the CMA for the benefit of consumers," said Dermot Nolan, chief executive of Ofgem. "This will help rebuild consumer trust and confidence in the energy market as well as provide the certainty investors have called for." He said that a recent assessment of the sector by Ofgem, the Office of Fair Trading and CMA showed increasing distrust of energy suppliers and uncertainty about the relationship between the supply and generation arms of the six largest suppliers; the suppliers had rising profits but there was no clear evidence of their reducing their own costs or becoming better at meeting customer expectations.
"The energy market is 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." The investigation comes after mounting pressure on the energy industry from consumer groups and politicians, following a period of soaring bills but a stream of fines and complaints about breaches of operating licences or poor service.
Ed Davey, the secretary of state for energy and climate change, said it was a major step towards ensuring the UK's energy market worked properly for consumers. He added: "Everyone should give their full support to this independent investigation. While it is underway we're not slowing down the reforms that are giving people a better deal on their energy." Caroline Flint, shadow energy and climate change secretary, said the referral underlined why her party was committed to breaking up the big six and freezing energy bills till 2017, should it win power in elections next year.
"The launch of a full market investigation is a clear admission that Britain's energy market is broken and that radical action is needed. However, it shouldn't paralyse politicians from taking action now, so while this investigation is happening, consumers should be protected from any more unfair price rises by freezing energy bills until 2017." Richard Lloyd, executive director of consumer group Which?, described the referral as a "watershed moment" for the millions of people struggling to cope with spiralling bills. "The investigation must leave no stone unturned in establishing the truth behind energy prices, and while it takes place Ofgem must continue its renewed, tougher approach to protecting consumers. Energy companies must also not wait for the outcome of this inquiry but make urgent changes now to do better by their customers." The share price of British Gas's parent group Centrica, already hit by expectations of an inquiry, fell another half a per cent to 312.50p, but its chief executive, Sam Laidlaw, said he welcomed the referral to the CMA. "We want an energy market that is trusted by customers, and we believe that an in-depth and thorough review by an independent and respected authority can help to achieve this." SSE's chief executive, Alistair Phillips-Davies, also welcomed the CMA inquiry, saying it was: "an important opportunity to demonstrate the competitiveness of the energy market, address any issues of public concern, and deliver good outcomes for consumers and a stable framework for investors." Ofgem said the CMA inquiry would start immediately and could be expected to look at tacit co-ordination - reflected in the timing and size of price announcements - plus new evidence that prices rise faster when costs rise than they reduce when costs fall.
The energy watchdog also cited the increase in average retail profits for the big six suppliers from pounds 233m in 2009 to pounds 1.1bn in 2012: "While the evidence on profitability is not conclusive, the rise over the last few years, allied to no clear evidence of increased efficiency, indicates a possible lack of effective competition." A host of inquiries into energy markets date back to 2001, when the Department of Trade and Industry investigated gas prices. The inquiries have rarely brought major changes to the industry.
Captions: This mass installation of solar panels in Broxtowe, Nottingham, demonstrates one solution to rising energy prices (c) 2014 Guardian Newspapers Limited.
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