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27 March 2014 | Will Green
Watchdog Ofgem has referred the energy market to the Competition and Markets Authority (CMA) to “remove uncertainty” about its competitiveness.
Ofgem said an inquiry would “clear the air” and ensure there are no “barriers to effective competition”.
The move follows the publication of a State of the Market assessment by the Office of Fair Trading and the CMA, which “confirms Ofgem’s previous analysis of why competition is not working as well as it could”.
The report found retail profits among energy suppliers increased 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”.
However, the report found “the market for business consumers is more competitive and there is less evidence of a weak demand side”. It said: “In particular, large industrial and commercial consumers are more likely to be able to engage effectively with suppliers, either directly or through a broker.”
Micro and small businesses had lower satisfaction levels with suppliers than larger firms, though there was “relatively low engagement with contracts across all business sizes and some evidence of dissatisfaction with suppliers’ response to customer queries”.
Micro businesses were less likely to have read their contract in the past year, with 25 per cent having done so compared to 29-30 per cent among larger businesses, and less likely to switch (14 per cent having switched in the past year compared to 18-19 per cent among larger firms).
Some 41 per cent of micro firms had not switched in the past five years, compared to 19 per cent among large businesses. The report also found smaller firms paid more for energy than larger companies, which could be “evidence of more active competition for large customers”.
Dermot Nolan, Ofgem chief executive, said: “The CMA has powers not available to Ofgem to address any structural barriers that would undermine competition.”
Energy UK, which represents the industry, welcomed the inquiry. “Many allegations have been made, and over such a long period, that the energy industry considers the best way forward is a competition referral,” it said in a statement. “The inquiry will need to be completed as speedily as the rules allow for it to be in the best interests of customers and to reduce uncertainty for the investors needed to build the new generation of power stations the country requires. The industry has nothing to hide and will fully cooperate with the authorities as they investigate competition in the energy market.”