Ofgem report on gas and electricity retail competition

Initial report (210 pages, 4.0M PDF) from Ofgem's inquiry into the operation of retail competition in electricity and gas.

The focus is on allegation of a lack of effective competition and the oligopolistic structure of the industry, with most of the market taken by six large vertically-integrated companies (the Big Six: EDF, Centrica/British Gas, RWE/npower, E.ON, Iberdrola/ScottishPower and Scottish & Southern).

The document includes proposals for modifications to supply licences that would:

Ofgem says that it will “begin, urgently, a programme of work to identify the underlying causes of low wholesale market liquidity” (particularly in electricity). However, the highlighted action is to “explore with the Big 6 suppliers how best to achieve a significant increase in liquidity”. The document does not prominently acknowledge any risk that the Big Six might be inclined to resist actions that increase liquidity (since smaller competitors would be likely to the main beneficiaries).

Ofgem will also consider reviving a market abuse licence condition in an attempt at controlling rising system balancing costs recovered through BSUoS (its last attempt at such a condition was thrown out by the Competition Commission in 2001), and possibly a “form of relative price control” on the Big Six to prevent “undue price discrimination” (between consumer groups).

Responses by Monday 1 December 2008.

For further information or advice please contact Franck Latrémolière.

Filed under Electricity, Gas, Ofgem.

Reckon LLP is an economics consultancy with expertise in data analysis, economic regulation and competition law.

About Reckon