Ofgem, the gas and electricity regulator, has today reported the initial findings from its investigation into competition in the Great Britain electricity and gas retail supply markets for domestic and small and medium enterprise (SME) consumers. The inquiry, launched in February 2008, was sparked by energy price rises following significant hikes in global fuel prices. The outcomes of the investigation will have broad impact across the electricity and gas sectors, and are likely to be of particular interest to energy suppliers and their consumers.

Key points

Ofgem's investigation covers:

  • the customer's perspective and experience of the market including access to information and barriers to switching supplier
  • suppliers' market shares, switching rates for different groups of customers (such as online, dual fuel, single fuel and pre-payment)
  • the competitiveness of suppliers' pricing in the different market segments and customer movement between payment types as well as suppliers
  • the relationship between retail and wholesale energy prices
  • the economics of new entry and the experience of companies trying to enter the energy market

The report notes that the six companies that supply most of the energy to domestic households in Great Britain (sometimes colloquially referred to as the "Big Six") are acting competitively and Ofgem has found no evidence of cartels. However, the report stresses a need for acceleration towards a more competitive market, highlighting that many consumers are not yet benefiting fully from the competitive market and vulnerable consumer groups are disproportionately affected.

Next steps

Ofgem is consulting on a package of measures to address these issues. Proposed measures to improve the way the market functions include:

  • a requirement that different prices for different payment types must be cost reflective and a prohibition on undue price discrimination
  • additional information obligations to customers relating to switching, including simpler easily comparable price metrics, information on available alternatives and a simpler switching process
  • strengthening the rules that seek to prevent misleading sales and marketing activities including on the information that must be provided on third party intermediaries
  • facilitating the smart metering roll out
  • where possible removing regulatory rules that constrain growth of energy suppliers
  • separate regulatory accounts for vertically integrated generation and supply businesses

In addition, Ofgem will be revisiting the issues of market liquidity and any required additional market abuse powers. Ofgem will seek agreement with suppliers on any proposed reforms. If Ofgem fails to reach such agreement, it will consider making a market investigation reference to the Competition Commission.

Responses on the Consultation are due by 1 December 2008.

To view the Ofgem report, please click here.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 06/10/2008.