Blackout threat as ‘Big Six’ face being broken up

Ofgem sign plans to refer the energy market for a full competition investigation
Ofgem sign plans to refer the energy market for a full competition investigation
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BRITAIN’S Big Six energy suppliers face the threat of being broken up after regulator Ofgem paved the way for the biggest ever investigation into the UK’s controversy-hit gas and electricity trade.

Ofgem said the probe by the Competition and Markets Authority (CMA) was needed to “clear the air” amid public anger at soaring household bills and sky-high profits for suppliers.

The CMA has wide-ranging powers that could radically overhaul the sector by separating the generation arms of companies from retail divisions selling gas and electricity to homes and businesses.

But British Gas owner Centrica yesterday warned that the investigation – which is expected to last up to two years – might make companies reluctant to invest large sums in vital new infrastructure, leading to a greater risk of blackouts.

Centrica chief executive Sam Laidlaw said: “A prolonged period of uncertainty could damage investment at a time when Britain’s energy security is being seriously challenged.”

The Big Six – Centrica, SSE, E.ON, npower, RWE and EDF – control 95 per cent of the gas and electricity market in the UK.

Retail profits increased from £233m in 2009 to £1.1bn in 2012, Ofgem said.

It also said prices had risen by 24 per cent over the same period, well ahead of the rate of inflation at 13.8 per cent.

Ofgem’s referral of the energy sector to the CMA came after it found evidence of what it called “possible tacit co-ordination” between companies on the timing and size of price announcements. However, it stopped short of accusing them of colluding in an illegal cartel arrangement.

The regulator’s chief executive, Dermot Nolan, said: “Ofgem believes a referral offers the opportunity to once and for all clear the air and decide if there are any further barriers which are preventing competition from bearing down as hard as possible on prices.”

Mr Nolan said that consumers had been “troubled” by energy bills in recent months and an investigation was the “right thing” to address their concerns.

Energy Secretary Ed Davey backed the full-scale probe, saying: “This is just too important for people to rely on guesses about how to fix the energy markets. If we get it wrong, consumers will pay the price.”

Labour’s Shadow Energy Secretary Caroline Flint said the announcement confirmed that the market was “broken” and that Ofgem had “failed to protect consumers”.

She also claimed the referral to the CMA was a vindication of her party’s energy price freeze policy.

Paul Massara, chief executive of npower, backed the inquiry, saying: “Britain has the third-cheapest gas prices in Europe and the seventh-cheapest electricity prices, and we have taken steps to get to the facts as to why bills are going up.

“If there are problems, they need to be dealt with, and where the market is operating well this can be acknowledged.”

The investigation is likely to be launched within weeks following a consultation on Ofgem’s findings.

Executive pay at Centrica was slashed by two-thirds last year, but bosses were still awarded annual bonuses worth more than £2m despite falling profits and a customer exodus.

The group’s annual report showed pay for the top five executives dropped to £6.7m from £18.6m in 2012.

However, annual bonuses worth £2.3m were still awarded to the top bosses.