Energy News

Ofgem to investigate ‘big six’ for running a cartel

By Martin Fagan - news@consumerchoices.co.uk

Reports say watchdog poised to order investigation into energy company accounts.

The “big six” energy suppliers in the UK are facing an investigation into pricing, as Ofgem is believed to be ready to launch an investigation into the way energy companies seemingly raise their prices in tandem with each other.

The investigation will look at the pattern of price rises and the way in which one of the “big six” hikes its prices the others immediately follow suit - as well as the way energy companies use the excuse of rising wholesale energy prices to raise tariffs for consumers.

Ofgem will shortly appoint accountants to investigate the energy companies after figures revealed an average 27% difference between what energy companies paid wholesale for electricity and what they charged retail customers and a 15% difference for gas, according to a report in the Daily Mail.

In all price rises over the past few years, energy companies have used the excuse of rising wholesale costs to justify increasing retail prices.

But the seemingly co-ordinated way the “big six” raise prices - which leaves consumers with little competitive choice when switching supplier - has raised Ofgem’s suspicion that these companies could be indulging in cartel-like behaviour.

However, when Ofgem conducted a seven-month inquiry into the energy industry which reported in October 2008, it found no evidence of a cartel, but concluded some consumers were missing out on the full benefits of competition.

“Apparent gaps between wholesale costs pose big questions about why there’s so little difference in headline rates for customers between the ’big six’,” said Audrey Gallacher, director of energy at watchdog Consumer Focus.

“It seems that even if they are facing lower costs, no firm is prepared to stand out from the crowd, showing a pack mentality on price rises.”

Last week, British Gas hinted it may raise energy prices for a second time in six months and last month, Scottish Power said it would increase gas bills by 19% and electricity bills by 10%, blaming the rise on continuing volatility in global energy markets.

On top of these price hikes, new research from uSwitch.com revealed that fuel poverty levels in the UK are spiralling upwards, with 6.3 million - 24% of all UK households - now classed as fuel poor.

Previously thought to mainly affect only lower income households and pensioners, fuel poverty is now spreading rapidly into the more affluent middle classes too, said researchers.