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Ofgem refers energy market for full competition investigation


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Thursday, June 26, 2014 - 12:00

 

 

We have today referred the energy market to the Competition and Markets Authority (CMA) for a full investigation. The CMA will begin its investigation immediately and will likely publish its final decisions by the end of 2015.

Clear the air

 

The investigation is an important opportunity to clear the air and should ensure competition in the energy market effectively bears down on costs and drives improvements in customer service and innovation. This will help rebuild consumer trust and confidence in the market.

 

 

It will also help to provide the certainty that is needed for investment in the energy sector and complement our recent reforms to make the market simpler, clearer and fairer for consumers.

Supplier distrust

 

Our recent assessment of the energy market, which we prepared with the Office of Fair Trading and CMA, showed that competition isn’t working as well as it should for consumers.

 

 

It showed increasing distrust of energy suppliers, uncertainty about the relationship between the supply businesses and the generation arms of the six largest suppliers, and rising profits with no clear evidence of suppliers reducing their own costs or becoming better at meeting customer expectations.

Investigation features

 

The CMA can decide which features of the market to focus on in its investigation and use its powers to address any structural issues that would undermine competition.

We fully expect the CMA to consider the action we’ve taken to intensify competition and protect consumers. The main areas we expect they will include in the investigation include:

 

  • 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 there is sufficient competition between the large energy suppliers
  • the trend of suppliers consistently setting higher prices for consumers who have not switched
  • low consumer engagement that contributes to weak competitive pressure in the market

We will play a full role assisting the CMA and will continue our work to protect consumers. This includes pushing forward next-day switching, improving the support available for vulnerable consumers in finding the best energy deal, developing new rules for brokers to follow in the non-domestic market, and working with government to ensure consumers get the maximum benefit from the smart meter revolution.

 

 

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.

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