Ofgem Proposes Radical Overhaul of UK Energy Supply Market

UK energy market regulator Ofgem is proposing sweeping away complex and unfair pricing practices and requiring the ‘big six’ energy suppliers to auction up to 20% of their electricity generation output following a major review of the sector.

Ofgem’s review found that competition is being stifled by a combination of tariff complexity, poor supplier behaviour, and lack of transparency. Furthermore, the degree of influence the big six assert on the retail market has not diminished since Ofgem’s 2008 probe. The clearest example, being the finding that for the first time there is evidence that the big six have adjusted prices in response to rising costs more quickly than they reduced them when costs fell.

Ofgem’s proposals are designed to force open the electricity and gas markets to ensure they work more effectively for consumers. The energy supply companies have eight weeks in which to engage constructively with Ofgem’s proposals. If firms frustrate reforms they risk ending up at the Competition Commission.

“Energy companies have failed to play it straight with consumers and so Ofgem is proposing to break the stranglehold the ‘big six’ have over the electricity market by making them auction up to 20% of their generation output. This would increase price transparency and make it easier for new players to enter the retail market,” explains Alistair Buchanan, chief executive of Ofgem. “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. That is why we are planning to sweep away this complexity so suppliers’ prices are fully exposed to allow easy price comparisons.”

He continues: “We are also backing these reforms with a tough approach to enforcement. 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.”

Ofgem has also announced a new investigation into Scottish Power and is exploring whether it needs to bring similar actions in the non domestic market (where the concerns rest on switching being frustrated). This is in addition to an ongoing investigation into British Gas, EDF Energy and npower and into how they handle consumers’ complaints.

Ofgem’s investigations into miss-selling by EDF Energy, npower, Scottish Power, and Scottish and Southern Energy are continuing.

Another finding of the review is that in general the supply companies’ response to the 2008 Probe reforms has been disappointingly poor. Ofgem proposes to strengthen the existing reforms and pursue companies with appropriate enforcement action if they fail to implement them.

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