Competition inquiry into UK’s energy giants should probe wholesale gas market says MP

A senior MP has called for the wholesale gas market to be included in the forthcoming competition inquiry into the UK’s energy sector.

Chairman of the Energy and Climate Change Committee Tim Yeo wrote a letter to the Competition and Markets Authority (CMA) emphasising that the investigation would be “compromised from the outset” if it failed to look at wholesale gas prices.

Mr Yeo stated: “I am surprised that the CMA has suggested that it is not minded to investigate the wholesale gas market, and I am writing to urge it to reconsider.”

The terms of the investigation were set out by the CMA two weeks ago and the authority aims to identify whether competition had been limited by “tacit co-ordination” on pricing between the big six gas and electricity suppliers.

Gas is the main method for heating homes in the UK and also is the dominant fuel powering the UK’s electricity network.

The probe into the energy sector was initiated after the energy regulator Ofgem raised concerns about the effectiveness of competition in the market between the six major energy firms.

Ofgem also raised the issue of wholesale prices and questioned energy suppliers why a reduction in their wholesale prices last winter had not been passed on to consumers.

Mr Yeo wrote: “The CMA inquiry must not only ensure the entire energy market is operating competitively, it also has an important role to play in re-establishing confidence in an energy market that has lost the trust of consumers. Without tackling such a major part of the energy system – where one large player in particular plays such a significant role – the inquiry cannot hope to do this.”

His comments are interpreted as a tacit reference to Centrica, the owner of the UK’s largest energy supplier British Gas.

Reporting a 40% fall in pre-tax profits for the past six months British Gas has dismissed forecasts by Ofgem that suggest the big six energy suppliers will double their operating margins in the coming year.

The CMA has said that it would respond directly to Mr Yeo’s request.

Last year, the Financial Conduct Authority, a predecessor to the CMA, found no evidence of manipulation in the UK wholesale gas prices after a whistleblower claimed traders and attempted to manipulate the UK’s National Balance Point gas price.

Simon Wyatt
Photo: Aastha Gill