'Big Six' competition inquiry will increase energy uncertainty

An 18 month investigation into the energy market is a long time to wait before the air really is cleared.

by Rachel Savage
Last Updated: 07 Jul 2015

- From MT's April 2014 issue - Centrica Boss Sam Laidlaw: 'Energy Is More Worthwhile Than Selling Luxury Goods'

After months of sniping at the ‘Big Six’ energy companies, it’s not really surprising regulator Ofgem has called for an investigation by the Competition and Markets Authority, ‘to consider once and for all whether there are further barriers to effective competition’. However, the prospect of a lengthy probe is doing nothing to lower the uncertainty in the industry.

There is ‘no clear evidence of suppliers becoming more efficient in reducing their own costs,’ Ofgem said, noting retail profits had increased from £233 million in 2009 to £1.1 billion in 2012.

However, it added, ‘further evidence would be required to determine whether firms have had the opportunity to earn excess profits’.

Ofgem also said it had found ‘evidence of possible tacit coordination’ around price rises, ‘reflected in the timing and size of price announcements’, although it saw no proof the ‘Big Six’ are explicitly working together to fiddle bills.

The rumblings over rising household gas and electricity prices turned into a roar last September, when Ed Miliband said he would freeze them for 20 months if elected next year and the ‘Big Six’ then proceeded to hike up bills.

Ofgem has since demanded the big boys, who have around 95% of the energy supply market, play fairly with their tiny rivals. However, it seems nothing but a full-on competition inquiry, which the regulator’s chief exec Dermot Nolan admitted could even see the ‘Big Six’ (British Gas, SSE, Npower, EDF, Scottish Power and E. ON) being broken up, will do.

Even before the inquiry was announced, concerns were being voiced in the industry about the impact using the ‘Big Six’ as political footballs is having on future investment in keeping our lights switched on. The issue is all the more pertinent given the geopolitical wrangling with Russia (and its natural gas supplies) and the furore over fracking here in the UK.

The energy giants, with one eye on their torrid reputations, have largely welcomed the opportunity to finally ‘clear the air’, as Ofgem put it. SSE even jumped the gun, announcing yesterday it was freezing prices until at least 2016.

However, Centrica boss Sam Laidlaw, profiled in MT's April issue, pointed out the obvious on BBC Radio 4’s Today programme. ‘A prolonged period of uncertainty could damage investment at a time when Britain's energy security is being seriously challenged,’ Laidlaw said.

Making sure consumers aren’t getting ripped off for heating their homes is obviously a good thing. However, dragging the debate on for another 18 months, as the CMA pokes around, is not going to do anything to get rid of uncertainty over the energy industry’s future.

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