CMA probe to focus on ‘opaque’ electricity wholesale and energy retail markets

The energy retail and electricity wholesale markets will form the focus of the upcoming Competition and Markets Authority (CMA) probe.

In its Issue Statement outlining its initial theories on what might be adversely affecting competition, the CMA stated that “opaque prices” in the wholesale electricity market could be harming competition.

The statement added that the vertically integrated firms may be harming non-integrated rivals by charging them more for the wholesale electricity or by limiting the sale of electricty to them.

The CMA added that a significant influence in the electricity generation market by the major companies could be leading to higher prices, and that suppliers face a weak incentive to compete on price and customer service.

Transmission and distribution will not be an area of investigation because the CMA has deemed it to be “cheaper to have generators and customers connected via a single network rather than multiple networks.”

The CMA will also not be investigating wholesale gas markets nor gas interconnection and storage.

Roger Witcomb, chair of the energy market investigation group, said: “We are looking to identify the underlying causes, at both wholesale and retail level, which could be leading to the widespread concerns that have surrounded this market in recent years – including rising energy bills, service quality, profitability and uncertainty over future investment.

“This is a market which is very complex so it is important at an early stage to focus the investigation on the most relevant issues.”

SSE chief executive, Alistair Phillips-Davies, said: “Whilst we will work constructively with the CMA to demonstrate the many features of the market that do work well, we also have a strong appetite for reform that is in the clear interests of customers and competition.”

The CMA is required to publish its final report by 25 December 2015.