Hopes that a long-awaited report from financial regulators would recommend the breakup of big six energy suppliers such as British Gas and SSE are about to finally be dashed.
The Competition and Markets Authority (CMA) will deny that the large companies have been colluding to drive up profits and will even suggest reversing a new policy that restricts the number of tariffs on offer.
But the CMA will argue that it has been too easy for the traditional players to make significant profits and will recommend a raft of new intiatives in a bid to introduce innovation and encourage customers to switch to cheaper providers.
The decision in Tuesday’s interim report not to force the dismantling of the large companies which use “vertical integration” – owning power generation and supply businesses – will come as a huge relief to the big six companies which also include EDF Energy, RWE npower, E.ON and Scottish Power.
But it will frustrate some campaign groups and the Labour party, which under its former leader, Ed Miliband, had promoted the policy in a bid to break the 90% market share of the big six in the retail market.
Laura Hill, a spokeswoman for the Fuel Poverty Action group, said it would be “laughable” if switching was emphasised over breakup as it would put the responsibility for the current problems on customers, not companies.
“Blaming energy customers for the big six’s exploitative antics is disgraceful and will not end the hardship millions of households suffer during the winter months.”
Equally there will be alarm if the CMA – as expected – calls for a U-turn on the system whereby energy companies have been forced to concentrate on four key tariffs to get away from the previous system of dozens of different schemes which had confused customers.
But the CMA will argue that the key to unlocking the stranglehold of the big six on market share and profits is to make it easier for “sticky” customers to move to independent suppliers offering cheaper deals.
The CMA, which has been reviewing the working of the energy market for the last 12 months, may also call for a bonfire of the 10,500 pages of industry codes which cause bureaucracy and cost, particularly hindering smaller new market entrants.
Juliet Davenport, chief executive of independent supplier Good Energy, said she would be delighted to see the CMA cutting red tape because it was hankering innovation.
“We want to see more people actively participating in the energy markets, from changing their usage patterns of energy through to generating their own power, and the way the market is set up at the moment just means those kinds of innovations are impossible,” she explained.
There are also hopes that the CMA will recommend some kind of action to prevent users of pre-payment meters facing higher charges than others. This has been a key concern of fuel poverty campaigners and Ofgem has already agreed to tackle the issue.
Those proposed remedies from the authority to reinvigorate the energy supply markets will go out for consultation, with final recommendations to be made before the end of 2015.
Rising concern about the energy supply sector has gradually increased over the last five years, exacerbated by a series of what appeared to be excessive and coordinated price rises amid mounting evidence of widening fuel poverty.
Alleged profiteering became a political issue when Miliband launched a ferocious attack on the industry at the Labour party conference in the autumn of 2013. The energy regulator, Ofgem, finally unveiled an initial investigation and quickly concluded a wider probe involving the CMA was needed.
Among the concerns was the fact that industry retail profits had increased from £233m in 2009 to £1.1bn in 2012, with no clear evidence of suppliers becoming more efficient in reducing their own costs.
Mark Todd, director of price comparison site energyhelpline.com, said there was plenty of evidence that retail customers were still not getting the deals they deserved.
“Wholesale prices have been falling for months and we are now at a five-year low. It’s now more apparent than ever that energy firms should pass on the savings that customers deserve. The cuts made to domestic tariffs earlier this year were paltry at just 2.5% and short-changed most customers, who are rightly angry.”
Gillian Guy, chief executive of Citizens Advice, warned that trust in the energy market was still at rock bottom.
“The vast majority of customers don’t understand the relationship between energy companies’ costs, the prices imposed on consumers and margins made from them,” she said. “It is crucial that the CMA leaves behind a sound framework that gives consumers confidence that they are not being ripped off.”
