The big six energy providers – British Gas, SSE, Npower, EDF, Scottish Power and E.ON – have been in the news over the past two weeks following the announcement that Ofgem (the regulator for the energy market) have referred them for a full competition investigation. So what does this actually mean and how will it affect you?
What is a competition Investigation?
It is an investigation, carried out by the Competition and Market Authority (CMA), into whether a particular market or industry is ‘anti-competitive’.
Why are the big six being referred?
Ofgem carried out an investigation into the energy market and discovered "possible tacit co-ordination" on the size and timing of price rises from British Gas, EDF, E.on, Npower, Scottish Power and Scottish and Southern Energy (SSE). In other words, they are now concerned as to whether the big six co-ordinate price increases so that they all implement such increases at the same time. This would seem a perfectly reasonable concern when you consider that the big six suppliers dominate 95 per cent of the energy market and history tells us that when one supplier increases its prices the others follow like sheep.
The regulator's investigation also found:
Ofgem therefore concluded that the only way to remove the uncertainty in the energy market was to refer it to CMA for an investigation, recognising that CMA have wider and greater powers to tackle the issue if their concerns are correct.
How long will the investigation take?
It is likely to begin in June and is expected to take around 18 months to complete. There will then be a further six months for any changes to be implemented.
What could the outcome be?
One possible outcome is that the big six will be broken up, allowing smaller suppliers to gain a foothold in the market. More suppliers in any market mean that it becomes more competitive and as a consequence you would expect prices to fall.
How will I be affected?
Firstly we will find out once and for all if consumers have been ripped off with their energy bills due to a lack of competition in the energy market. Hopefully the main impact will be that the market becomes more competitive, with more deals and offers becoming available leading to cheaper energy bills. Even before the investigation we have seen a sign of this with SSE announcing that it would freeze prices until 2016. Will the rest now follow?
What will happen now?
The review could take up to two years to complete but Ofgem warned of much higher fines amounting to "tens of millions of pounds" against power companies if they break rules in the meantime.
There are a number of measures that CMA could take after it concludes its investigation, including breaking the energy providers up. Ofgem has therefore expressed concern over whether "vertical integration" – where energy firms both produce and supply energy – is in consumers' interests.
Should I switch providers?
It is always worth considering switching energy providers get yourself a better deal. Whilst the investigation is going on the energy providers will be doing their best to look fair and reasonable so hopefully there will be some good deals available. There are many comparison websites that will help you with this.
My thoughts...
There is no doubt about it that this investigation, which frankly should have been commissioned years ago, is good news for consumers. I only hope that it does not fall short and that it gets to the heart of the problem and tackles the real issues, leaving our energy market to be fair, transparent and trustworthy.