Ofgem has called for an investigation into the British energy sector by the Competition and Markets Authority (CMA).
The energy watchdog hopes that the investigation will restore trust to the industry and determine whether there is a lack of competition and significant barrier to entry, within the energy sector.
Huge profits and little evidence of lower costs
Ofgem claimed that the big six’s profits had rocketed from £233m in 2009 to £1.1bn in 2012 and there was no evidence that suppliers were getting better at keeping their costs low.
The energy regulator added that suppliers were guilty of setting higher energy prices for customers who don’t switch and rewarding those who changed tariff often.
The news follows an announcement from SSE that it will freeze its energy rates and split its retail and wholesale businesses.
At present, the big six – British Gas, EDF Energy, E.ON, npower, SSE and ScottishPower – supply close to 95% of the domestic market.
‘Opportunity to once and for all clear the air’
Chief Executive of Ofgem Dermot Nolan, 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.
“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.”
‘Competition working in the supermarket sector – why can’t it work for energy?’
Director of Consumer Policy at uSwitch Ann Robinson said: “We welcome Ofgem’s proposal for the CMA to investigate the energy market. It is clear from the evidence we have seen that competition is not working well enough and it is absolutely essential that, in order for consumers to benefit from competition, we obtain a greater level of engagement. Competition is working well in the supermarket sector – why can’t it work as well for energy?
“We also look forward to the launch of Ofgem’s consumer engagement campaign. Many of us lack both the information and the confidence to participate in this market. We need a simple, straight talking education programme that enables consumers to make the market work for them.”
‘Consumers will have to take their own steps to make their bills more affordable’
“We do recognise that the Retail Market Review goes some way to make it easier for consumers to engage, but we need to take a hard look at what extra measures might be necessary. It’s likely to be at least 18 months before we even see any proposals come out of this investigation.
“What is clear is that there is no cavalry coming to the rescue anytime soon. In the meantime, consumers will have to take their own steps to make their bills more affordable. There are two ways to do this – the first is to pay as little as possible for the energy we use; the second is to use less of it, by making homes as energy efficient as possible,” added Robinson.