Ofgem, the energy regulator for Great Britain, has announced its findings after a seven-month investigation into the energy supply markets. It commenced its investigation in February 2008 in response to adverse media and political commentary about energy price rises.

The energy regulator has concluded that there is no evidence of a cartel or inappropriate pricing by the 'big six' energy suppliers, but that there are "some important areas where the transition to competitive markets now needs to be accelerated".

Ofgem's analysis compared the domestic energy supply market in Great Britain with other consumer markets in the UK and with energy supply markets across the world. It concluded that the British energy supply market generally compared favourably, both in terms of supplier market shares and the extent of consumer switching.

However, perhaps mindful of the latest findings of the Business, Enterprise and Regulatory Reform Select Committee, Ofgem stopped short of giving the energy supply markets an entirely clean bill of health.

In particular, Ofgem expressed concerns that some consumers (particularly vulnerable consumers) are not benefiting fully from the competitive market, and that the market is not encouraging the development of a competitive 'fringe' of smaller suppliers.

Ofgem has therefore proposed, and is consulting on, the following five actions:

  1. promoting more active customer engagement – including clearer information on consumer bills, an annual prompt on how to switch supplier, and a further review of suppliers' rights to block switching where a consumer is in debt;
  2. helping consumers make well-informed choices – the rules governing the sales and marketing activities of suppliers will be strengthened (particularly door-step selling), and Ofgem pledges its support to the roll-out of smart meters;
  3. reducing barriers to entry and expansion – Ofgem will review the regulatory obligations that could act as an undue deterrent to small supplier growth, and is to launch a probe of wholesale market liquidity. Ofgem is also considering a requirement on the 'big six' to produce separate regulatory accounts for generation and supply, and has asked whether Ofgem needs additional powers to guard against market abuse;
  4. helping small business consumers – it is proposed that suppliers be obliged to inform small business consumers of key supply terms and conditions. Codes of practice for third party intermediaries and in respect of objections under the switching process are also proposed; and
  5. addressing concerns over unfair price differentials – new licence conditions are proposed which would oblige suppliers to ensure cost-reflective charging for different payment types (this is aimed particularly at pre-payment meters), and to avoid undue price discrimination (possibly by way of a relative price control).

For full details, read the Ofgem report. The consultation ends on 1 December 2008.