Ofgem has confirmed that it has referred the UK energy market to the Competition and Markets Authority (CMA) for a full investigation.
The market watchdog said that the investigation would settle “once and for all” that competition in the energy sector is working for the public.
Dermot Nolan, Ofgem chief executive, explained that the time was right to refer the UK energy market to the CMA. He said: “There is near-unanimous support for a referral and the CMA investigation offers an important opportunity to clear the air. This will help rebuild consumer trust and confidence in the energy market as well as provide the certainty investors have called for.”
The CMA will start its investigation immediately, with a decision expected by the end of 2015. Ofgem has listed the main areas of concern that it feels the CMA should investigate, namely: the relationship between the supply businesses and generation arms of the six largest suppliers, barriers to entry and expansion for suppliers, the profitability of the six largest suppliers, whether or not there is sufficient competition between the large energy suppliers, the trend of suppliers consistently setting higher prices for consumers who have not switched; and low consumer engagement that contributes to weak competitive pressure in the market.
Nolan added: “The energy market is also 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.”
Reacting to the decision, Caroline Flint MP, Labour’s shadow energy and climate change secretary, said: “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.”
Which? executive director, Richard Lloyd, added: “This is a watershed moment for the broken energy market and 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.
“We need to see radical reforms to fix the Big Six that will inject more competition into the market and help rebuild trust by giving consumers confidence that the price they are paying is fair.”