Ofgem has referred electricity and gas firms for a competition inquiry which will see the Big Six players put under the spotlight.
Consumers have lost trust in utility firms amid spiralling household energy bills, combined with growing profits at the major companies. The major players have also been accused of providing confusing billing and tariff structures – while few customers switch between companies to find a better deal.
The Big Six, which includes SSE and Scottish Power, currently supply over 94 per cent of all household gas and electricity.
Dermot Nolan, Ofgem chief executive, said: “Now is the right time to refer the energy market to the CMA for the benefit of consumers. 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.”
Issues such as whether supply and generation arms of energy firms should be separated; the profitability of the six largest suppliers; whether or not there is sufficient competition between the large energy suppliers and the lack of consumer engagement in the market will all be considered in the review.
Consumer groups have welcomed the investigation, which will begin immediately and is expected to reach a conclusion by the end of 2015.
“This is a watershed moment for the broken energy market and millions of people struggling to cope with spiralling bills,” said Which? executive director Richard Lloyd.
“The investigation must leave no stone unturned in establishing the truth behind energy prices.”
Ann Robinson, director of consumer policy at uSwitch.com, called for energy firms to take pre-emptive action to improve competition for consumers ahead of the outcome of the investigation.
“There is at last hope on the horizon for fairer prices and better service,” she said. “If anyone can sort out the energy industry it’s the heavyweight CMA – and it has quite a job on its hands.
“This is last chance saloon for energy companies – but rather than sit back and wait for two years, they have a chance to make things better for consumers in the here and now.”
Tom Greatrex, Scottish Labour’s shadow energy minister said: “The launch of a full market investigation is a clear admission that Britain’s energy market is broken and that radical reform is needed. Alex Salmond has been silent on energy prices, failing to challenge the Big Six and ignoring the interests of the consumer.”
Alistair Phillips-Davies, chief executive of Perth-based SSE, said: “This reference will be an important opportunity to demonstrate the competitiveness of the energy market, address any issues of public concern and deliver good outcomes for consumers and a stable framework for investors.”
Keith Anderson, chief corporate officer of ScottishPower, said: “It’s really important that any changes are based on rigorous and careful study of the evidence. The CMA is absolutely the right body to do this in-depth work.”