Ofgem demands reforms to gas and electricity markets

Ofgem has told the country’s biggest utilities it believes sweeping reforms are needed to the retail gas and electricity market to encourage competition at a time of rising energy prices.

“We will pursue breaking up the stranglehold of the Big Six on the electricity market to encourage more firms, like new arrival the Co-op, to enter the energy market and increase the competitive pressure on the Big Six,” chief executive Alistair Buchanan said in a statement.

The big six utilities are Scottish and Southern Energy, Centrica, Iberdrola’s Scottish Power, RWE’s npower, EDF Energy and E.ON UK, which recently sold its power networks to US power firm PPL.

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Ofgem said that rising energy prices, it noted that wholesale energy costs have risen by 30 per cent since December 2010, made competition in the gas and electricity market even more important.

Inflation hit a two-and-a-half year high in May, squeezing Britons’ finances and a study from the Institute for Fiscal Studies showed poorer families, who spend a bigger proportion of their income on food and fuel, have faced far higher inflation in recent years than richer ones.

The regulator also said it was launching a new investigation into Scottish Power, as it believes the company’s marketing in relation to a recent price rise is potentially misleading.

This follows another investigation into the same company it started earlier this year.

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Ofgem’s move to shake-up the utility sector follows the results of a review published in March which also said the companies would have to make room for new companies and told the companies they must offer simpler and fairer tariffs.

Firms were engaging in the reform process, said Ofgem, but added that they still risk referral to the Competition Commission if they fail to reform.