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Energy probe could lead to ‘major structural change’

Thursday June 26th 2014

An investigation of the UK energy market could result in “major structural change”, according to the boss of industry regulator Ofgem.

It referred the industry to the Competition and Markets authority (CMA) because it does not believe the market is working effectively. The probe is set to look at the profits of the six largest suppliers.

In March an Ofgem report questioned the effectiveness of competition in the market and recommended a full inquiry. It was then required by law to consult other interested parties before making a final referral. One of Ofgem’s central concerns is the structure of the market which allows big companies to be both energy generators and suppliers to households. It wants the CMA’s investigation to examine how this works and whether the relationship should be broken up.

“It could lead to a major structural change in the industry and indeed the energy companies themselves.” Ofgem’s chief executive Dermot Nolan told the BBC’s 5 live Money.

So what happens now?

The most long awaited competition probe in years will get underway almost immediately. Within days the CMA will appoint the independent panel members who will lead the investigation. The scope of the investigation will be crucial. Some big 6 firms say it should be broad, covering everything that makes up our energy bill, from wholesale prices to green levies.

If the CMA finds flaws that are limiting competition, keeping new entrants out and keeping prices higher than they might otherwise have been, then it has the power to undertake structural remedies. That could mean the break up of the big 6 firms. Our energy market may never be the same again.

Consumer groups welcomed today’s announcement.

“The investigation must leave no stone unturned in establishing the truth behind energy prices, and while it takes place Ofgem must continue its renewed, tougher approach to protecting consumers. Energy companies must also not wait for the outcome of this inquiry but make urgent changes now to do better by their customers,” he said.