Energy firms told to trade fairly with smaller rivals

The “big six” energy firms are being told to trade with small energy suppliers fairly, or face heavy fines.

Regulator Ofgem says its plan will make it easier for new suppliers to enter the market, and will improve the transparency of the firms’ accounts.

The firms, such as E.On and British Gas, will have to publish wholesale power prices two years in advance.

This will make it easier for small companies to buy energy and re-sell it to domestic and industrial customers.

Andrew Wright, chief executive of Ofgem, said that having changed the rules so consumers can find the best deals, the regulator now wanted to break down barriers to competition for new suppliers.

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

“Almost two million customers are with independent suppliers, and we expect these reforms to help these suppliers and any new entrants to grow.”

New rules

When selling their power in the wholesale market, the companies will have to publish their prices daily, in two one-hour windows, to give independent suppliers the chance to buy power in advance more economically.

Darren Braham of the small supplier First Utility, said the latest reforms could make a big difference.

“Currently the Big Six generators sell their energy to themselves meaning on the forward wholesale energy market, where smaller suppliers need to buy their energy, there is very little liquidity,” he said.

“First Utility’s analysis suggests that this increases costs by approximately £30 per household per year.

“If the industry were changed, these reduced costs could be passed on to customers equating to UK wide savings of almost £1bn from energy bills,” he added.

Clearer accounting

The regulator is now looking at the way suppliers account for the electricity they generate, trade, and sell to consumers.

The companies will have to provide more details of their trading operations and have full audits of the accounts they provide to the regulator.

“We also want to ensure that information on revenues, costs and profits of the largest energy suppliers is as clear as possible for consumers,” said Mr Wright.

“Now we are taking further steps to ensure that it is published more quickly, and that it gives a robust, useful and accessible picture of company profits.

“Both of these reforms will help ensure competition bears down as effectively as possible on prices,” he added.

Scratching the surface

Energy UK, the trade body for the energy suppliers, said its members had been cooperating with the regulator in drawing up its latest plans.

“Ofgem already receives information about costs and trading and we are working together on ways to make our information more easily and widely available,” it said.

But the consumers’ association Which? said the latest measures only “scratched the surface” of the changes needed to benefit consumers.

“We want a full competition inquiry so that hard-pressed consumers can be confident that the market works well for them, as well as shareholders, and that the price they pay is fair,” said Which? executive director Richard Lloyd.

The new rules on competition, which come into effect on 31 March 2014, follow criticism from MPs last year that Ofgem had failed consumers by not doing enough to ensure that the finances of the dominant big six suppliers were transparent.

MPs on the Energy and Climate Change Committee (ECCC) said in July that “working out exactly how their profits are made requires forensic accounts”