Energy Secretary Ed Davey calls for probe into 'Big Six' profits

Davey has written to regulator Ofgem asking them to look more closely at the market

Energy Secretary Ed Davey is calling for an investigation into the profit margins of energy companies (Getty Images)

Energy Secretary Ed Davey has called for regulators to look investigate profits being made by the 'Big Six' energy companies through supplying gas.

The Liberal Democrat wants Ofgem to examine whether their profit margins - in some cases five times higher for gas than for supplying household electricity - should be the subject of a market investigation.

Such an investigation, if it found evidence of a monopoly, could see a company being broken up.

He claimed gas made up two-thirds of the energy bills for households connected to the grid and that if profit margins for gas came down to a similar level to those in the electricity market, it could save every household £40 per year.

The recommendation came in a letter to Ofgem chief executive Andrew Wright, in which Mr Davey singled out British Gas.

He said there was evidence the company, which has the greatest share of the domestic gas market, had tended "to charge one of the highest prices over the past three years, and has been on average the most profitable".

Mr Davey wrote: "Clearly you will wish to consider whether this is prima facie evidence of an issue in the market and so whether it merits a market investigation reference with the whole gamut of potential remedies that could follow including a break up of any companies found to have monopoly power to the detriment of the consumer."

Mr Davey's letter also suggests looking at whether the Big Six should adopt a different business model and how well British energy markets are linked to those in mainland Europe.

Which? Executive director, Richard Lloyd, said: "This is a hugely significant intervention by the Secretary of State for Energy and implies that Ed Davey agrees with Which? that the structure of the biggest energy companies is partly to blame for the price hikes that millions of squeezed customers have been struggling with in recent years.

"The pressure is now on the regulators to announce next month that they are taking the first steps towards a more radical reform of the energy market, and to give consumers confidence that they are paying a fair price."

British Gas said it was complying with an ongoing independent market assessment being conducted by the Office of Fair Trading (OFT), Ofgem and the Competition & Markets Authority (CMA).

"Further discussions have been arranged over the coming weeks in which we will fully participate," a spokeswoman said.

Ofgem said it would look at all evidence while compiling its report with the CMA and OFT. It declined to comment further.

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