The UK's energy regulator Ofgem says it will “break the stranglehold” that the country's major utilities have over the energy market with a package of reforms aimed at improving transparency and competition.
Ofgem's recent in-depth review of the electricity and gas domestic retail markets has uncovered evidence of poor supplier behaviour, tariff complexity and a lack of effective competition.
It has proposed five reforms that will “force open the electricity and gas markets to ensure that the market works effectively for consumers”, according to Ofgem Chairman Lord Mogg.
Energy supply companies have eight weeks in which to engage constructively with Ofgem's proposals or they will face a referral to the UK's Competition Commission.
In its review, Ofgem found that the country's 'Big Six' suppliers - EDF, British Gas, E.On, RWE npower, Scottish and Southern and Scottish Power - are able to assert too much influence over the retail market.
Ofgem believes that these six utilities put up their energy prices in response to rising costs more quickly than they reduce them when costs fall - something that consumer groups have suspected for some time.
“Consumers must have confidence that energy companies are playing fair at a time when they are being asked to foot the £200 billion bill to pay for the investment Britain needs to ensure secure and sustainable energy supplies,” said Ofgem CEO Alistair Buchanan.
Among the proposed reforms is a requirement for the Big Six to sell off between ten and 20 per cent of their power generation into the market. This would enable smaller players to compete more effectively in the market, said Buchanan.
Ofgem also wants to “sweep away” complex tariffs and address the lack of transparency in the way that the cost of gas and power is accounted for in utilities' accounting systems by appointing an independent firm of accountants to investigate further. “Consumers have told us that energy suppliers' prices are too complicated. It is no surprise that they are bamboozled when tariff complexity has increased from 180 to more than 300 since 2008,” said Buchanan.
Ofgem also said that the response by the utilities to its market probe in 2008 had been “disappointingly poor”.
In response to Ofgem's proposals, Phil Bentley, Managing Director of British Gas, said: “We welcome any proposals that further boost competition in the UK energy market and provide reassurance for consumers. In particular, we welcome Ofgem's proposals to improve electricity market liquidity and transparency in the reporting of company returns.
“This review by Ofgem has been full and wide-ranging, and we believe a line can now be drawn under the issues addressed, and the need for a Competition Commission Inquiry.
“We will now digest the detail of Ofgem's plans and work with the regulator to make the necessary changes that will continue to build trust in the UK energy market.”
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