The Competition and Markets Authority (CMA) has issued an initial report on the UK’s energy sector in which it underlines energy prices, the dominance of the big six and a lack of competitiveness as the main areas of concern.
The study is part of the CMA’s in-depth investigation into the energy sector which is set to run until December 2015.
Big six domination under the microscope
The 18-month investigation will examine the behaviour of the big six – British Gas, EDF Energy, E.ON, npower, ScottishPower and SSE – and consider how they have come to dominate the sector for 14 years since privatisation.
The CMA will also consider why energy prices continue to rise and the relationship between these increases and wholesale prices, as well as allegations of tacit coordination in relation to the big six raising prices at the same time.
Concerns include: energy bills, service quality, profitability and future investment
Roger Witcomb, chairman of the Energy Market Investigation Group said: ” “Given the importance of energy supply to households, businesses and the economy, we very much encourage submissions on the issues we have identified and whether these cover the areas we need to investigate.
“We are looking to identify the underlying causes, at both wholesale and retail level, which could be leading to the widespread concerns that have surrounded this market in recent years – including rising energy bills, service quality, profitability and uncertainty over future investment.
‘Theories of harm’
In this initial report the CMA set out four ‘theories of harm’ which could potentially explain why the market is not working as well as it should.
These theories include a lack of transparency and low-level liquidity in wholesale energy markets, which makes it difficult for new companies to enter the retail and generation energy market.
The second theory relates to how vertically integrated electricity companies, make it difficult for non-integrated suppliers to compete and therefore negatively affects competitiveness.
Thirdly, market power in terms of electricity generation results in higher prices.
Finally, a lack of consumer switching means energy suppliers are not incentivised to compete on price.