U.K. Big Six Utilities Fall on Concern Review May Urge Split
The U.K.’s biggest power utilities fell in London trading on speculation a regulatory review may lead them to separate their generation and retail operations.
Industry regulator Ofgem said today it plans to publish a report this month on the state of competition in the energy market. Its assessment may lead to a referral of Britain’s “Big Six” suppliers to the Competition and Markets Authority and a possible breakup of their operations, the London-based Sunday Times reported yesterday, citing people it didn’t name.
The watchdog’s evaluation adds to speculation of an industry overhaul after Energy Secretary Ed Davey last month floated a possible breakup of Centrica’s British Gas unit and asked the regulator to investigate whether the company was profiting from excessively high tariffs.
Centrica traded at 331.5 pence at the close, while SSE was at 1,475 pence. Shares in Electricite de France SA, RWE AG, Iberdrola SA and EON SE -- making up the Big Six -- also fell.
The utilities have been criticized for raising prices faster than inflation, inflaming political debate over living costs. Prime Minister David Cameron’s government last year pledged to make it easier to switch tariffs, while the Labour opposition vowed to freeze charges should it win 2015 elections.
Ofgem will compile its assessment together with the CMA and the Office of Fair Trading, Howard Rhoades, a spokesman for the regulator, said today by telephone, without commenting on its potential recommendations.
“Although we doubt Ofgem will produce any new compelling evidence that the energy sector is uncompetitive, there is immense political pressure on Ofgem to be seen to be taking action,” analysts at Liberum Capital Ltd. said in a note.
Utilities have blamed rising prices on increases in natural-gas costs, levies to pay for clean energy and regulations requiring they reduce carbon emissions. A month ago Ofgem asked them to publish prices for wholesale power as much as two years in advance to improve transparency.
Centrica today said the market in Britain is already “intensely competitive and works in the interest of consumers.” Officials at SSE, Iberdrola’s Scottish Power, EDF and RWE declined to comment, while EON couldn’t be reached.
The potential breakup of the utilities has been supported by the U.K. Federation of Small Businesses, which said the energy market is “broken and urgently needs fixing.”
“Top of our concerns is the need to increase competition and to make trading transparent,” the FSB said in a letter to regulators including Ofgem and the Office of Fair Trading.
To contact the reporter on this story: Nidaa Bakhsh in London at firstname.lastname@example.org