Ofgem cracks down on Big Six energy firms
Tuesday 22 March 2011
The energy regulator Ofgem stepped up efforts to temper the influence of the biggest utilities yesterday by proposing that they auction up to a fifth of their electricity generation output and simplify tariffs that leave customers "bamboozled" by their complexity.
The action comes on the back of an Ofgem review which found that competition in the gas and electricity market was being stifled by "a combination of tariff complexity, poor supplier behaviour and lack of transparency".
Moreover, the study showed that the influence of the "Big Six" utilities – Scottish Power, nPower, EDF Energy, Scottish and Southern Energy, E.ON UK and Centrica's British Gas – over the retail market had not diminished since the regulator's last review in 2008.
Lord Mogg, the regulator's chairman, said the proposals "should force open the electricity and gas markets to ensure the market works effectively for consumers".
"The energy supply companies have eight weeks in which to engage constructively with Ofgem's proposals," he warned. "If firms frustrate reforms, they risk ending up at the Competition Commission."
Ofgem said the clearest example of the continued influence of the big utilities was evidence that "the Big Six have adjusted prices in response for rising costs more quickly than they reduced them when costs fell".
"Energy companies have failed to play it straight with consumers and so Ofgem is proposing to break the stranglehold the Big Six have over the electricity market by making them auction up to 20 per cent of their generation output," Alistair Buchanan, the regulator's chief executive, said.
"This would increase price transparency and make it easier for new players to enter the retail market."
Mr Buchanan added that consumers had told Ofgem that suppliers' prices were "too complicated", leaving them "bamboozled".
"That is why we are planning to sweep away this complexity so suppliers' prices are fully exposed to allow easy price comparisons," he said.
It proposed restricting the number of tariffs for products that have no termination date to one per payment method for domestic customers. Ofgem also proposed the appointment of an independent accounting firm to study accounting disclosures.
The regulator said it was concerned that transparency regarding the way utilities "account for the cost of gas and power in their supply business remains limited by company-specific policies, especially when they supply energy from another part of the same business".
"As a result, we feel that consumers are not provided with sufficient clarify about how retail prices relate to suppliers' costs," the regulator said.
Alongside the industry proposals, Ofgem also announced a new investigation into Scottish Power's standard credit prices and said it was exploring whether similar measures were needed in the non-domestic market.
Responding to the announcement, Scottish Power pledged to co-operated and said it believed its pricing to be "cost reflective and in accordance with Ofgem's guidelines".
The industry has until the beginning of June to help Ofgem to develop its proposals or propose alternative moves.
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