Big Six Energy Giants Face Probe

The Big Six energy companies in Britain will be subjected to a full-scale competition investigation after new figures show a massive rise in profits.

Regulator Ofgem reports that profits in the sector quadrupled to more than £1 billion in three years and said the Competition and Markets Authority (CMA) will "consider once and for all whether there are further barriers to effective competition".

Ofgem stated: "Profit increases and recent price rises have intensified public distrust of suppliers and highlight the need for a market investigation to clear the air."

Before the watchdog makes a final decision on referring the sector to the CMA it is required to run a consultation on its proposals, which it has now launched.

This latest development comes after a sustained period of mounting political pressure as consumers continue to see bills rising at a time when household budgets are already stretched amid an ongoing squeeze on real-terms wage growth.

Many older people have been hit especially hard by unavoidably high energy bills and confusing tariffs.

If it goes ahead it will be the first full-scale competition probe into the energy market, with the UK's biggest suppliers coming under an unprecedented level of scrutiny and facing the threat of being broken up.

Ofgem said it has proposed a full CMA investigation to support its efforts to achieve a "simpler, clearer and fairer energy market" even though it has already brought in several reforms, which come fully into force from next month.

It has taken the decision after carrying out an assessment with the Office of Fair Trading and the CMA, which confirmed previous concerns about the major players' big market shares and the barriers preventing smaller suppliers entering the fold.

The report found that retail profits, which come from the supply of gas and electricity to homes and businesses, increased from £233 million to £1.1 billion between 2009 and 2012.

This huge profit increase came despite an absence of clear evidence that suppliers have become more efficient in reducing their own costs, Ofgem said.

The watchdog suggested further evidence will be needed "to determine whether firms have had the opportunity to earn excess profits".

Ofgem also expressed concerns that falling consumer confidence in the energy market – it is reported 43% of people do not trust energy firms to be open and transparent – might put consumers off "engaging with the market" and finding better energy deals.

Concerns have also been raised about the impact on consumers of "vertical integration", which is when firms have both energy production and household supply divisions.

Ofgem said a full-scale probe would conclusively decide whether these should be separated.