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Dermot Nolan, Ofgem: "No evidence of cartel, but weak competition"
Regulators will investigate whether the "big six" UK energy suppliers prevent effective competition in the UK energy market.
A report by regulator Ofgem has called for an investigation by the Competition and Markets Authority (CMA) which could take 18 months.
Centrica boss Sam Laidlaw said it would cause delays to investment and "an increasing risk" of blackouts.
Ofgem's report has criticised the effectiveness of competition.
The big six - SSE, Scottish Power, Centrica, RWE Npower, E.On and EDF Energy - account for about 95% of the UK's energy supply market.
The Ofgem report finds "possible tacit co-ordination" on the size and timing of price rises, but does not accuse the major energy firms of colluding over prices.
"Start Quote
End Quote Dermot Nolan Ofgem chief executiveNow consumers are protected by our simpler, clearer and fairer reforms, we think a market investigation is in their long-term interests"
The BBC's Industry Correspondent John Moylan said the report also cited low levels of switching by consumers and the fact that the market shares of the big six suppliers had not changed significantly over time.
Richard Lloyd, executive director of the consumer group Which, said the regulator was conceding that it had not done enough to regulate the market and that the energy companies were privately admitting "they had made a mess of things."
'Clear the air'Ofgem is now referring the market to the CMA - the new competition body - "to consider once and for all whether there are further barriers to effective competition".
Sam Laidlaw, Centrica chief executive, said he hoped "a lengthy review process will not damage confidence in the market, when over £100bn of investment in new infrastructure is needed".
When questioned on the BBC Radio 4's Today programme over whether it would mean power outages he said: "There is an increasing risk. A lot can be done in terms of demand management, but actually building a new gas power station does take four years.
"So that's the kind of time pressure we are up against, by adding another two years that makes it six years."
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Energy Secretary Ed Davey: "This review will help clear the air"
However, the Energy Secretary, Ed Davey said: "He is absolutely, totally wrong and I can prove it. We have 14 contracts for power generation [in the pipeline] over the next 15 years.
"What we are seeing in Britain is a big investment in energy.
"It is true that companies like Centrica are not investing as much as we might like them to but we are seeing independent energy generation firms like Siemens coming in in their place."
Profit increasesOfgem's report also says profit increases and recent price rises have intensified public distrust of suppliers and have also highlighted the need for a market investigation "to clear the air".
How much have energy bills ended up rising? |
|||
|---|---|---|---|
| Supplier | 2013 average bill cost | 2014 average bill cost | Average price increase |
|
Source: Uswitch based on 3,200kwh of electricity consumption, and 13,500 kwh of gas. Dual fuel standard tariffs. Payment by cash or cheque on quarterly basis. |
|||
|
E.On |
£1,226 |
£1,240 |
1.1% |
|
EDF |
£1,190 |
£1,237 |
3.9% |
|
SSE |
£1,211 |
£1,259 |
4.0% |
|
Scottish Power |
£1,230 |
£1,284 |
4.4% |
|
British Gas |
£1,191 |
£1,265 |
6.2% |
|
Npower |
£1,220 |
£1,299 |
6.5% |
|
Average |
£1,212 |
£1,264 |
4.3% |
Dermot Nolan, Ofgem chief executive, said: "The CMA has powers, not available to Ofgem, to address any structural barriers that would undermine competition.
"Now consumers are protected by our simpler, clearer and fairer reforms, we think a market investigation is in their long-term interests. "
When asked on the Today Programme whether there would be a breakup of the six largest suppliers Mr Nolan said: "It's possible, (but) I couldn't guess what the Competition and Markets Authority will do".
He said the investigation would take some time, but that in the meantime they would "be keeping the pressure on" suppliers.
Tim Yeo, Chairman of the Energy Select Committee said he thought a breakup of the companies was the most likely conclusion of the investigation. He said: "You could cut to the chase and say let's get on with it now.
"I think that would be the quickest way to restore confidence of consumers in the industry.
"I also think it would remove some of the risks of the lights going out, because investment could take place now."
The report comes a day after supplier SSE announced it was freezing prices until January 2016, putting pressure on rivals to do the same.
SSE whose companies include Swalec said the freeze would lower profits, but that it would "streamline" its business to cover the shortfall.
'Restore confidence'The energy sector has been at the centre of some strident political debate since last summer.
This began with Labour leader Ed Miliband's party conference speech, in which he pledged to freeze energy prices for 20 months if Labour were elected.
He also vowed to abolish the current energy regulator, Ofgem, and replace it with a new regulatory regime that ensured consumers got a "fair deal".
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Caroline Flint fears inquiry will delay tougher action against energy firms
Caroline Flint, Labour's shadow energy secretary, said that the new energy report from Ofgem confirmed that the energy market was broken.
The road towards a full inquiry into competition in the market was announced by Ed Davey, the energy secretary, in February.
He wrote to regulators to say that the profit margins made by the six major energy suppliers in the UK were higher than previously thought.
E.On UK chief executive Tony Cocker has now said an investigation was the only way "to restore full public confidence to the energy sector and depoliticise the whole issue".
What do you think of the findings of the report? Are you happy with your current energy supplier? Is enough being done to increase competition?
Email us at haveyoursay@bbc.co.uk adding 'OFGEM report' in the subject heading and include your contact details.
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