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CMA investigation of energy market proposed by Ofgem

28 March 2014

Ofgem has proposed referring the CMA to investigate the energy market and whether there are still barriers to effective competition.

Calling it an act to remove uncertainty from the energy market, the energy regulator says an investigation by the Competition and Markets Authority (CMA) would, once and for all, clear the air, ensure that there are no further barriers to effective competition and reassure consumers of Ofgem’s reforms for a ‘simpler, clearer and fairer’ energy market.

According to Ofgem, there are several problems with the energy market including declining consumer confidence with 43% distrusting energy companies to be open and transparent; retail profits increasing from £233 million in 2009 to £1.1 billion in 2012, with no clear evidence of suppliers becoming more efficient in reducing their own costs; and suppliers consistently setting higher prices for consumers who have not switched.

The regulator also believes an investigation by CMA is necessary because CMA’s more extensive powers can address any long-term structural barriers to competition and with the roll-out of smart meters, an investigation will ensure that there are no further barriers that prevent consumers from making the most of the transformation smart meters will bring to the energy market.

Katja Hall, CBI Chief Policy Director commented: ‘We must have an energy market in this country that can attract the £110 billion of investment needed over the coming years to secure and transform our power supply, while ensuring bills are manageable for both households and businesses.

‘An inquiry provides an opportunity to resolve the current debate and win back some much-needed confidence in the market. To achieve this, it is vital that the CMA is able to get on with its job swiftly, free from political interference.’

Taking a more critical approach to the proposal of an investigation, Chief Executive of Forum of Private Business Phil Orford said: ‘Today's non-announcement means further delays in tackling the energy market. Business consumers, not just households, have been hit by above inflation increases in their energy bills. However, whilst the costs of doing business are a problem in the short term, we are mindful of the longer term issues of energy supply. For all that businesses might distrust some of their energy suppliers, they recognise that investment needs to be made in future energy supply. Hanging the sword of Damocles' over energy companies perhaps isn't the best way of encouraging that investment in the long term.’

He also added that the resolution needed is not to break up the big six but ‘better transparency on their processes and source of profit; not to create a whole raft of new energy providers, but to better promote the other alternatives that are already out there; not to place uncertainty on firms we need to invest in energy sources, but to ensure their efforts are more robustly monitored by Government and consumers.’

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