Ofgem begins energy market probe

Ofgem says customer confidence has been knocked

The energy regulator, Ofgem, has launched an investigation into the electricity and gas markets for households and small businesses.

There has been concern about whether the market is working effectively.

Consumer groups and unions have criticised British Gas owner Centrica for announcing large increases in profits after putting up bills.

Ofgem says it currently has no evidence of anti-competitive behaviour but is responding to customer worries.

"The decision to conduct the probe is in response to public concern about whether the market is working effectively," Ofgem chief executive Alistair Buchanan said.

We hope it will shed light on how the energy market fails consumers and what can be done to fix it Adam Scorer, Energywatch

"We are concerned about the increased volatility of wholesale prices and we want to investigate how European and other global energy market developments are affecting energy bills in Britain," he added.

If Ofgem finds problems it could refer the matter to the Competition Commission for further investigation.

The investigation will look into:

• The relationship between retail and wholesale energy prices
• Barriers to customers switching gas and electricity supplier
• How competitive prices to different types of customers are
• Whether it is difficult for new suppliers to enter the market

Competition concerns

Consumer watchdog Energywatch has been calling for an investigation into the energy market.

"Consumer concerns have demanded this sort of response. We hope it will shed light on how the energy market fails consumers and what can be done to fix it," Adam Scorer, Director of Campaigns at Energywatch said.

There have been 15 inquiries into the energy market in the last 7 years and each of them has given the industry a clean bill of health Centrica statement

It is concerned that the reduction in the number of suppliers from 20 to six has reduced competition.

The group has also questioned whether companies that supply energy, as well as producing it, have too much power.

Call for evidence

Amid concerns about rising household energy bills, Ofgem bosses met Chancellor Alistair Darling on 16 January.

They told Mr Darling the UK's energy market was working and that they had "no evidence that the recent energy price rises are a result of industry collusion".

Ofgem said again on Thursday that it had no strong evidence of anti-competitive behaviour, but it has called for anyone with any proof to come forward.

A spokesperson for the Department for business, enterprise and regulatory reform responded by saying it welcomed Ofgem's latest move, adding: "The impact of prices on vulnerable consumers is of real concern, and it's vital that all consumers have access to competitive markets."

During the investigation, the regulator will be able to call on powers under the Enterprise Act which will allow it access to detailed industry information that is not normally made available.

'Competitive market'

Britain's biggest energy supplier Centrica, which owns British Gas, announced a 40% rise in operating profit on Thursday.

It made a large part of this in the early part of 2007 when wholesale gas prices were falling.

Consumer groups have questioned whether energy companies reduced customers' bills sufficiently during that time.

Centrica said it would co-operate fully with the inquiry.

"There have been 15 inquiries into the energy market in the last seven years and each of them has given the industry a clean bill of health," the company said.

EDF Energy said customers had a wide range of products and suppliers to choose from.

"We believe that the market is working well and is highly competitive. The large number of customers switching between suppliers is testimony to this," an EDF spokesperson said.

This view was echoed by the Energy Retail Association, which argued that Britain had "the most competitive energy market in Europe", adding that it had no reason to believe that the Ofgem probe would find anything new.

Ofgem will publish its initial views on the issue before the end of September and will hold a fuel poverty summit in April.