Ofgem plans competition inquiry ‘to break up the Big Six’

Regulator to take action after SSE announces price freeze till 2016 that will cost £100m

Environment Editor

The big six energy suppliers face the prospect of being broken up when the regulator announces a shake-up of the industry today.

A day after Britain’s second biggest gas and electricity supplier, SSE, announced an unconditional two-year price freeze, Ofgem will kick off a process that is likely to involve a full-scale competition investigation into the energy sector.

This will probe whether British Gas, Scottish Power and the other four big-six providers should be broken up into completely separate retail and energy generation businesses. This would address persistent allegations that they are attempting to disguise the profit they make from supplying cash-strapped households by hiding some of it in the accounts of their generation operations. The big six have always strenuously denied any such activity.

The investigation is also expected to cover why the main energy companies typically tend to increase and decrease their prices within a few weeks of one another – which has raised concerns about industry collusion – and to delve into British Gas’ dominating 41 per cent share of the gas market.

The political tension around energy prices reached a new high yesterday after SSE said it would freeze prices until 2016.

During Prime Ministers Questions yesterday, Ed Miliband appeared to take some credit for SSE’s move – which came six months after he promise to freeze prices for two years if elected prime minister. He accused David Cameron of being “not the prime minister at all, but a pr man for the energy companies”. At the time, Mr Cameron dismissed his price freeze pledge as “unworkable”, but yesterday he welcomed SSE’s announcement. Mr Miliband said: “We’ve obviously misunderstood the prime minister. He is the champion of the price freeze. Week after week he denounced Labour’s call for an energy price freeze to help families and businesses, but now apparently he supports a price freeze.”

The other five big six providers were weighing up their options yesterday after SSE announced a unconditional price-freeze until 2016. The group insisted that the timing of its announcement had nothing to do with today’s Ofgem announcement – although many in the industry remained sceptical.

A source at one rival said: “SSE’s announcement is not a happy coincidence, not in a million years.”

An employee from another rival added: “I’m sure all the companies will react in some way over the next few weeks.”

Ofgem is expected to put the issue of whether to launch a full-scale competition inquiry out to consultation first – a process that will take six to eight weeks – with a two-year review of the industry expected to be announced early June.

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