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Dermot Nolan, Ofgem: "No evidence of a cartel but there's weak competition"
Regulators will investigate whether the "big six" UK energy suppliers are preventing effective competition in the UK energy market.
The investigation will be by the Competition and Markets Authority (CMA) and is expected to take 18 months.
Regulators have spent three months looking at how vigorously the six largest suppliers compete, and how they can remove uncertainty from the market.
Regulators also looked at market share and how new entrants can compete.
The big six - SSE, Scottish Power, Centrica, RWE Npower, E.On and EDF Energy - account for about 95% of the UK's energy supply market.
But the Ofgem report does not accuse the major energy firms of colluding over prices. However, it does find "possible tacit co-ordination" on the size and timing of price rises.
The BBC's Industry Correspondent John Moylan said the report also cited low levels of switching by consumers and the fact that the market shares of the big six suppliers had not changed significantly over time.
'Clear the air'Ofgem is referring the market to the CMA - the new competition body - "to consider once and for all whether there are further barriers to effective competition".
Ofgem also says profit increases and recent price rises have intensified public distrust of suppliers and have also highlighted the need for a market investigation "to clear the air".
| Supplier | 2013 average bill cost | 2014 average bill cost | Average price increase |
|---|---|---|---|
|
Source: Uswitch based on 3,200kwh of electricity consumption, and 13,500 kwh of gas. Dual fuel standard tariffs. Payment by cash or cheque on quarterly basis. |
|||
|
E.On |
£1,226 |
£1,240 |
1.1% |
|
EDF |
£1,190 |
£1,237 |
3.9% |
|
SSE |
£1,211 |
£1,259 |
4.0% |
|
Scottish Power |
£1,230 |
£1,284 |
4.4% |
|
British Gas |
£1,191 |
£1,265 |
6.2% |
|
Npower |
£1,220 |
£1,299 |
6.5% |
|
Average |
£1,212 |
£1,264 |
4.3% |
Dermot Nolan, Ofgem chief executive, said: "The CMA has powers, not available to Ofgem, to address any structural barriers that would undermine competition.
"Now consumers are protected by our simpler, clearer and fairer reforms, we think a market investigation is in their long-term interests. "
When asked on Radio 4's Today Programme whether there would be a breakup of the six largest suppliers Mr Nolan said: "It's possible, (but) I couldn't guess what the Competition and Markets Authority will do".
He said the investigation will take some time, so meanwhile, "we'll be keeping the pressure on" suppliers.
But Sam Laidlaw, Centrica chief executive, said he hoped "a lengthy review process will not damage confidence in the market, when over £100bn of investment in new infrastructure is needed".
He added: "A prolonged period of uncertainty could damage investment at a time when Britain's energy security is being seriously challenged."
The report comes a day after supplier SSE announced it was freezing prices until January 2016, putting pressure on rivals to do the same.
SSE whose companies include Swalec said the freeze would lower profits, but that it would "streamline" its business to cover the shortfall.
'Restore confidence'The energy sector has been at the centre of some strident political debate since last summer.
This began with Labour leader Ed Miliband's party conference speech, in which he pledged to freeze energy prices for 20 months if Labour were elected.
He also vowed to abolish the current energy regulator, Ofgem, and replace it with a new regulatory regime that ensured consumers got a "fair deal".
Caroline Flint, Labour's shadow energy secretary, said that the new energy report from Ofgem confirmed that the energy market was broken.
The road towards a full inquiry into competition in the market was announced by Ed Davey, the energy secretary, in February.
He wrote to regulators to say that the profit margins made by the six major energy suppliers in the UK were higher than previously thought.
E.On UK chief executive Tony Cocker has now said an investigation was the only way "to restore full public confidence to the energy sector and depoliticise the whole issue".
What do you think of the findings of the report? Are you happy with your current energy supplier? Is enough being done to increase competition?
Email us at haveyoursay@bbc.co.uk adding 'OFGEM report' in the subject heading and include your contact details.
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