Energy probe could lead to 'major structural change'

Gas ring

An investigation of the UK energy market could result in "major structural change", according to the boss of industry regulator Ofgem.

It referred the industry to the Competition and Markets Authority (CMA) because it does not believe the market is working effectively.

The probe is set to look at the profits of the six largest suppliers.

"This will help build consumer trust and confidence in the energy market." said Ofgem boss Dermot Nolan.

"Now is the right time to refer the energy market to the CMA for the benefit of consumers.

"There is near-unanimous support for a referral and the CMA investigation offers an important opportunity to clear the air."

In March an Ofgem report questioned the effectiveness of competition in the market and recommended a full inquiry. It was then required by law to consult other interested parties before making a final referral.

'Major structural change'

One of Ofgem's central concerns is the structure of the market which allows big companies to be both energy generators and suppliers to households. It wants the CMA's investigation to examine how this works and whether the relationship should be broken up.

"It could lead to a major structural change in the industry and indeed the energy companies themselves." Ofgem's chief executive Dermot Nolan told the BBC's 5 live Money.

And he added: "I do think there are pros and cons to the argument, but we absolutely feel it needs to be examined and settled by the authority and we hope they'll make this a central aspect of the report."

Analysis John Moylan, BBC News

So what happens now?

The most long awaited competition probe in years will get underway almost immediately. Within days the CMA will appoint the independent panel members who will lead the investigation. That will be followed within weeks by a timetable for the work and its terms of reference.

The scope of the investigation will be crucial. Some big 6 firms say it should be broad, covering everything that makes up our energy bill, from wholesale prices to green levies.

But the regulator isn't convinced. It has highlighted again the core issues that have caused the trust in the energy market to break down - the wholesale and retail markets and the links between the two.

If the CMA finds flaws that are limiting competition, keeping new entrants out and keeping prices higher than they might otherwise have been, then it has the power to undertake structural remedies. That could mean the break up of the big 6 firms.

Our energy market may never be the same again.

End of 'toxic debate'

Ofgem also wants the CMA to examine whether there is sufficient competition between the large energy providers, and whether consumers who do not switch supplier are being set higher prices.

Energy UK, which represents the largest energy companies, said it welcomed the investigation. "The competition inquiry will allow us to put to bed the toxic debate and shine a light on the progress the industry has already made" said its chief executive Angela Knight.

And she added: "There are now more companies than ever in the market, switching is on the up especially to smaller suppliers and the industry is making it easier than ever for customers to engage with their company."


Earlier this month Ofgem reached agreement with the energy companies to make it easier for customers to switch supplier. Under the agreement customers will be able to switch energy supplier within three days by the end of the year.

Anyone who wants to switch must be given a two-week cooling-off period for the chance to change their mind, before the three-day process starts.

Next-day switching should be in place by the end of 2018 at the latest.

At present, the switching process can take five weeks, including the two-week cancellation period.

'No stone unturned'

Consumer groups welcomed today's announcement.

"This is a watershed moment for the broken energy market and millions of people struggling to cope with spiralling bills," said Richard Lloyd, executive director of the consumer group, Which.

"The investigation must leave no stone unturned in establishing the truth behind energy prices, and while it takes place Ofgem must continue its renewed, tougher approach to protecting consumers. Energy companies must also not wait for the outcome of this inquiry but make urgent changes now to do better by their customers," he said.

More on This Story

Related Stories

The BBC is not responsible for the content of external Internet sites

More Business stories


BBC Business Live

    FRACKING LICENCES 06:09: BBC World News
    Brenda Kelly

    Brenda Kelly from IG Index is reviewing the newspapers on World News. "It is interesting to compare the Guardian's coverage with the Telegraph. The Guardian says there will be drilling but the Telegraph says it won't. There are a huge amount of environmental issues - the amount of water used, the risk of small earthquakes, for example. All energy firms will have to provide an environmental statement if they are going to drill near sites of natural beauty."

    FRACKING LICENCES 06:03: Radio 5 live
    Barton Moss Results from test drilling for shale gas at Barton Moss, Salford are being analysed

    Energy companies are being invited to bid for licences to extract oil and gas from large areas of Britain, using the controversial process known as fracking. The technique will be all but banned from national parks and other environmentally sensitive areas. Mike Bradshaw, professor of Global Energy at Warwick Business School, tells Radio 5 live people are concerned: "We've got very limited experience of fracking in the UK. So we don't know the answer to many of the questions that people have about what fracking will look like under UK and EU regulations which are very different from those that exist in the United States."

    06:01: Matthew West Business Reporter

    Morning folks, as ever you can get in touch with us by email at and on twitter @bbcbusiness.

    06:00: Rebecca Marston Business reporter, BBC News

    Monday morning. Here we are. Fracking is under the spotlight as companies start to bud for licences to drill for shale gas. Stay with us for the pick of the business news from the BBC and elsewhere.



  • SyedTanks instead of toys

    Lyse Doucet on the plight of children in Syria and Gaza

  • Boy with head stuck in railingsSmall Data

    Heads stuck in banisters - the official statistics

  • The two sisters in their bakeryBaking hot

    Why two Spanish sisters started a bakery in the desert

  • A farmer walks in front of a construction site of new residential buildings in Hangzhou, ChinaPrice drop

    Sharp falls in China's property market

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.