Ofgem investigates the state of competition in the energy market


Ofgem has called for the Competition and Markets Authority (CMA) to investigate the market to consider once and for all whether there are further barriers to effective competition. Profit increases and recent price rises have intensified public distrust of suppliers and highlight the need for a market investigation to clear the air. Ofgem’s reforms have come into force from April to protect consumers and help them get a better energy deal.

High voltage spark between two cables.

Ofgem has acted to remove uncertainty from the energy market by proposing a market investigation by the CMA. A market investigation will once and for all clear the air and allow the CMA to ensure that there are no further barriers to effective competition. An investigation would reassure consumers and complement Ofgem’s reforms for a simpler, clearer and fairer energy market.

The State of the Market assessment, prepared jointly with the Office of Fair Trading and CMA, confirms Ofgem’s previous analysis of why competition is not working as well as it could. As well as reinforcing concerns about barriers to entry for independent suppliers and persistent high market shares of the largest energy companies, the report includes further evidence and shows continuing uncertainty over whether the vertical integration of the large energy companies is in consumers’ interests.

Retail profits increased from £233m in 2009 to £1.1bn in 2012, with no clear evidence of suppliers becoming more efficient in reducing their own costs, although further evidence would be required to determine whether firms have had the opportunity to earn excess profits.

Ofgem believes the CMA’s more extensive powers can address any long-term structural barriers to competition. Ofgem chief executive Dermot Nolan said: “The CMA has powers, not available to Ofgem, to address any structural barriers that would undermine competition. Now consumers are protected by our simpler, clearer and fairer reforms, we think a market investigation is in their long-term interests.”


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