The Labour Party has urged the UK's competition body to include the energy watchdog, Ofgem, in an expected inquiry into the power sector. Caroline Flint,
the shadow energy and climate change secretary, has written to the
Competition and Markets Authority just days before the end of a six week
consultation on whether there should be a formal reference for a deeper
investigation into the industry.
Flint has the support of
consumer group Which? and at least one of the Big Six suppliers, SSE,
but there has been speculation that Ofgem has been lobbying to remain
outside of the scope of any review – something it denies. Labour's
top energy policymaker said it was vital the effectiveness of Ofgem and
the regulatory regime is included if any investigation carried out by
the CMA is to achieve its aim of restoring public confidence and
industry competition. "In its consultation document on the
proposal to make a market investigation reference, in respect of the
supply and acquisition of energy in Great Britain, Ofgem does not
directly address the effectiveness of the existing regulatory framework,
or the effectiveness of the existing regulator itself in monitoring and
enforcing its rules and regulations. In my view, this is a very serious
omission," argued Flint in her letter to CMA chief executive Alex
Chisholm.
Ofgem, the CMA and the Office of Fair Trading have
already issued a preliminary assessment of the energy market that raised
many concerns about the way companies had been profiting while
consumers missed out.
The deadline for submissions to that
consultation winds up this Friday with expectations high that the CMA
will be asked to undertake a much deeper probe that could last at least
18 months. The complication with the role of Ofgem is that the
regulator alone takes the decision as to whether there should be a
referral or not and possibly the extent of any inquiry.In the
past Ofgem has been repeatedly attacked by Labour and consumer groups
for being far too lenient on the Big Six companies which dominate both
the energy supply and the connected power generation sectors.
Ofgem
said on Sunday night it had always made clear it would want to see a
thorough inquiry if a final decision is to refer the market and insisted
it had never argued against Ofgem's role being included in that. "If
we were to make a reference, it would be for the CMA to decide which
features to focus on within the scope of the terms of reference. An
inquiry would clear the air for energy consumers and stakeholders. It
would also allow the CMA to ensure that there are no further barriers to
effective competition." The Department of Energy and Climate
Change said it was "premature" to talk about the issue while the
consultation was still ongoing but both Which? and the SSE confirmed
they want to see Ofgem specificially included in the brief.
A
spokeswoman for the CMA said it would be up to Ofgem to set the
boundaries of the inquiry but noted that "under the Enterprise Act we
could ask for the terms of reference for a market investigation
reference to be varied." Meanwhile Adrian Reed, managing director
and head of energy at international investment bank Altium, said the
City watchdog needed to review the actions of not just the energy
companies and Ofgem but also the government.
"A CMA inquiry should
not just be bashing energy companies but looking at Ofgem, DECC and the
government. The way to shake the market up is to introduce competition
but new entrants do not want to enter when there is so much policy
uncertainty. Will this (wider review) happen? You have got to remember
that the CMA is itself a government agency."
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