A full investigation is to be held into the UK's energy market in a bid to "rebuild" consumer trust, it has been announced.
Regulator Ofgem said the Competition and Markets Authority (CMA) probe, expected to take around 18 months, will look at the relationship between the supply businesses and generation arms of the Big Six energy firms.
It will also study the Big Six's profits, as well as any barriers to entering the market and the regulator said it should ensure "once and for all" that competition works effectively.
Ofgem chief executive Dermot Nolan said: "Now is the right time to refer the energy market to the CMA for the benefit of consumers. There is near-unanimous support for a referral and the CMA investigation offers an important opportunity to clear the air.
“This will help rebuild consumer trust and confidence in the energy market as well as provide the certainty investors have called for.
"The energy market is also going to change rapidly over the next few years with the roll-out of smart meters, the Government's electricity market reforms, and closer integration with European energy markets.
"A CMA investigation should ensure there are no barriers to stop effective competition bearing down on prices and delivering the benefits of these changes to consumers."
Ofgem said the number of customers switching suppliers had fallen in recent years, while consumer trust had also slumped, with 43 per cent saying they didn't trust energy suppliers to be open and transparent in their dealings with them.
The regulator noted that the average retail profits for the big six had increased from £233m in 2009 to £1.1bn in 2012, while profits for supply and generation rose from £3bn to £3.7bn in the same period.
The CMA will begin its investigation immediately and is likely to publish final decisions by the end of 2015. It can decide which features of the market to focus on in its investigation and use its powers to address any structural and behavioural issues that would undermine competition.
Ofgem said it would expect the CMA to look at the relationship between the supply businesses and generation arms of the six largest suppliers; barriers to entry and expansion for suppliers; the profitability of the six largest suppliers; whether or not there is sufficient competition between the large energy suppliers; the trend of suppliers consistently setting higher prices for consumers who have not switched, and low consumer engagement that contributes to weak competitive pressure in the market.
Professor David Elmes, head of Warwick Business School’s Global Energy Research Network, said: “The question is who is being investigated? The companies, the regulator or the government’s policies that have driven recent reform of the energy industry?
“After many years of leaving energy to be run by the markets, the UK has recognised a need for a new model of collaboration between industry, the regulator and Government so as to meet our needs for affordable, sustainable and secure sources of energy.
“But resolving that model in a world where energy prices look to only rise steadily over time has become a mainstream political issue in recent months. What we need to hope for is that the CMA will step back and consider energy’s role in society and our economy and whether the past focus on market competition is the right way to tackle today’s challenges.”
EDF Energy said the investigation was an "important moment" for the industry, providing an opportunity to enable a "thorough, objective" look at the energy market to identify areas where there was room for improvement in the interests of customers.
"I do not expect the investigation alone to rebuild trust, that remains our responsibility,” said chief executive Vincent de Rivaz said "The CMA investigation will allow us to show how companies like EDF Energy, that both generate and supply electricity, are able to take a long-term view that is focused on customers and serves their interests.
"We are investing in new electricity generation and will continue to make significant investments in skills, research and development, and new technology for business and residential customers."
Sam Laidlaw, chief executive of British Gas owner Centrica, welcomed the news, adding: "We continue to focus on listening to our customers and meeting their needs. Our aim is to provide affordable energy, good service and innovative products that help customers reduce their consumption and save money on their energy bills.
“British Gas now has more than one million smart meters installed in our customers' homes, demonstrating our commitment to putting customers in control of their energy usage and bills."
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