Energy suppliers could face first anti-trust probe

LONDON Thu Mar 27, 2014 12:34am GMT

A gas hob is seen in this photo illustration taken in London December 2, 2013. REUTERS/Stefan Wermuth

A gas hob is seen in this photo illustration taken in London December 2, 2013.

Credit: Reuters/Stefan Wermuth

Related Topics

Quotes

   

LONDON (Reuters) - Britain's energy suppliers could be on track for their biggest shake up since privatisation when regulators rule on Thursday whether the industry is competitive enough following a public outcry over high prices.

Three regulators will say whether the whole industry needs to be subjected to a full-blown anti-trust investigation which could result in some of the big gas and electricity suppliers being broken up.

A referral for a monopoly review is widely expected.

"We believe that a referral is likely," analysts at broker Liberum said in a research note.

Public trust in the country's "big six" providers, which control around 95 percent of the market, is at an all-time low after years of rising energy bills and allegations they are abusing their market position.

The issue has become a political football a year before a parliamentary election with all parties trying to tap into the public discontent over high energy bills, which have risen 10 percent on average over two years.

Prime Minister David Cameron ordered a review of competition in the energy retail sector in October last year, calling the high cost of energy unacceptable.

His request came shortly after opposition leader Ed Miliband promised he would freeze energy prices and restructure the energy market if his Labour party is elected in 2015.

The review has been carried out jointly by energy regulator Ofgem, the Competition and Markets Authority (CMA) and the Office of Fair Trading (OFT).

Energy analysts expect the review is likely to result in a full competition investigation, not least because Ofgem wants to be seen as acting strongly on the case.

"There is immense political pressure on Ofgem to be seen to be taking action," Liberum analysts said.

The big six - SSE, Scottish Power, Centrica, RWE npower, E.ON and EDF Energy - deny any wrongdoing but have started freezing prices and splitting supply and generation businesses in response to customers leaving.

"It is an opportunity to show that we have nothing to hide and to prove to our customers that we have their best interests at heart, so that we can earn and retain their trust," EDF Energy chief executive Vincent de Rivaz said this week.

Britain's Secretary of State for Energy, Ed Davey, urged Ofgem in a letter written in February to look at above-average gas prices charged by the country's biggest supplier British Gas, owned by Centrica.

"Clearly you will wish to consider whether ... it merits a market investigation reference," Davey said in the letter.

British Gas owner Centrica said it had fully supported the market review every step of the way and that it thought Britain's energy supply market was highly competitive.

Consumer products body Which? and the Federation of Small Businesses said a survey they had carried out showed that nine in ten energy consumers want to see a full investigation of the energy market.

"We need to clear the air. Even if there is nothing wrong, we won't be satisfied until someone independent can tell us once and for all that nothing is broken in the market," Audrey Gallacher, director of energy at UK consumer lobby group Consumer Futures, said.

Depending on the outcome of the investigation, the CMA, which is replacing the Competition Commission and the OFT from next month, can go as far as ordering a break up of the companies it says are breaching competition rules.

An example of such a break-up was British Airports Authority, which was forced to sell some of its airport assets to dilute its monopoly position in the market.

(Editing by Kate Holton. Editing by Jane Merriman)

FILED UNDER: