Last week, a joint assessment of competition in the energy market, published by Ofgem, the Office of Fair Trading and the Competition and Markets Authority (CMA) found that competition in retail energy markets may not be achieving good outcomes for all consumers and small businesses.
The State of the Market assessment confirms Ofgem’s previous analysis of why competition is not working as well as it could. As well as reinforcing concerns about barriers to entry for independent suppliers and persistent high market shares of the largest energy companies, the report includes further evidence and shows:
- declining consumer confidence with 43% distrusting energy companies to be open and transparent. This may deter consumers from engaging in the market and prevent them from getting a better deal for their energy
- continuing uncertainty over whether the vertical integration of the large energy companies is in consumers’ interests
- 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, although further evidence would be required to determine whether firms have had the opportunity to earn excess profits, and
- suppliers consistently setting higher prices for consumers who have not switched.
Dermot Nolan, Ofgem Chief Executive, said: “Ofgem believes a referral offers the opportunity to once and for all clear the air and decide if there are any further barriers which are preventing competition from bearing down as hard as possible on prices.
“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.”
Brian Rickerby, Joint Managing Director at energyTEAM comments; 'The Ofgem investigation into competition between the ‘big six’ is to be welcomed, if nothing else to ‘clear the air’ amidst constant allegations of ‘price cartels’ and ‘excess profiteering’.
However, does it really take 18 months to complete an enquiry? We desperately need investment in the energy infrastructure if we are to prevent power cuts. The Government is relying on private energy companies to provide this investment but private companies will be reluctant to invest up to the £100bn needed amongst a background of uncertainty.
I appreciate the enquiry needs to be thorough but we need it completed as quickly as possible. A slow report is not necessarily a better report.'