26 Feb 2014

‘Big six’ told to trade fairly – will it make a difference?

Energy regulator Ofgem says it is “tearing down barriers to competition” with new rules to benefit independent suppliers. But critics say the reforms will have little immediate benefit for consumers.

The new rules mean that the country’s six largest suppliers and the largest independent generators will have to publish the price at which they will trade wholesale power up to two years in advance.

The prices must be published daily, in two, one-hour windows.

Ofgem CEO Andrew Wright said “These reforms give independent suppliers, generators and new entrants to the market, both the visibility of prices and opportunities to trade that they need to compete with the largest energy suppliers.”

Almost two million UK customers now buy their energy from independent suppliers and Mr Wright said “we expect these reforms to help these suppliers and any new entrants to grow.”

More transparent market

Pylons reflected in a mirror (Reuters)

Dale Vince, the founder and managing director of independent energy supplier Ecotricity, welcomed Ofgem’s announcement, saying it had been “a long time coming”.

In a statement he told Channel 4 News: “These new regulations will give independent suppliers better access to the wholesale energy market, on more transparent and equitable terms. This will aid competition without a doubt.”

While many of these measures are welcome, they only scratch the surface of the changes needed to bring competition to the market Richard Lloyd, Which?

But he warned: “It’s not a panacea to the problems of high energy bills: our continued over-reliance on imported fossil fuels means prices are ultimately only going one way – upwards.”

Energy Secretary Ed Davey described the new rules as a “significant and welcome toughening up of competition in electricity markets.”

Mr Davey said: “by making these wholesale prices more transparent, it will help reveal how the big six energy companies are trading, and make it easier for new competition to challenge their business model.”

But Stephen Fitzpatrick, the founder and managing director of Ovo Energy, told Channel 4 News his company had never had a problem buying enough gas or electricity, and he did not think that opening up the wholesale energy market should be Ofgem’s top priority:

“We feel that the regulator should be much more aggressive in tackling problems in the retail market that have much greater impact on consumers, and prevent effective competition from flourishing.”

Could do better

Under the new rules, failure to trade fairly with independents could potentially see the big six firms facing fines of up to 10 per cent of company turnover.

But critics say the new obligations on them to allow more detailed audits of their accounts and changes to their annual statements will take a long time to bear fruit, if they make any difference at all.

Shadow Energy Secretary Caroline Flint said: “Instead of simply stopping energy companies doing secret trades between the generation and retail parts of their businesses, as Labour has proposed, Ofgem is tinkering around the edges with a whole host of complicated interventions which will be difficult to properly monitor and enforce.”

Executive director of consumer group Which?, Richard Lloyd, said: “We have long been calling for greater transparency in our broken energy market and while many of these measures are welcome, they only scratch the surface of the changes needed to bring competition to the market and to make it work for consumers.”