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Ofgem refers energy market for full investigation

Lucinda Beeman
Written By:
Lucinda Beeman
Posted:
Updated:
26/06/2014

Regulator Ofgem has referred the energy industry to the Competition and Markets Authority (CMA) for a full investigation to assess whether barriers to competition exist.

The CMA will begin its investigation immediately and is expected to publish its final decision by the end of 2015.

A recent assessment of the energy market by Ofgem found consumer distrust of energy suppliers growing.

Ofgem also found that energy company profits were rising despite no clear evidence of reduced costs or better meeting consumer expectations.

Dermot Nolan, chief executive of Ofgem, 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 decide for itself which features of the market to focus on, but Ofgem expects that the profitability of the six largest suppliers, whether competition is sufficient and the trend of suppliers setting higher prices for consumers who have not switched will be included in the investigation.

Consumer disengagement, barriers to entry and expansion for suppliers and the relationship between the supply and generation arms of the UK’s largest firms are also expected to be investigated.

Nolan said: “The energy market is 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.”

Ofgem said it will play a ‘full role’ assisting the investigation alongside other projects, which include driving next-day switching forward.

Ann Robinson, director of consumer policy at uSwitch.com, says: “There is at last hope on the horizon for fairer prices and better service. If anyone can sort out the energy industry it’s the heavyweight CMA – and it has quite a job on its hands.”