MPs quiz Ofgem boss on energy competition and prices

Suzie Neuwirth

Ofgem’s chief executive Dermot Nolan faced a grilling from a committee of MPs earlier today, who questioned the timing of – and motivation behind – the regulator’s decision to refer competition in the retail energy market to the Competition and Markets Authority in March.

Nolan – who joked that he was “a masochist” for taking on his role – denied that there was any pressure from the energy secretary to refer the issue, calling it “an independent regulatory decision” based on “clear, empirical evidence that the market is not working well”.

The energy and climate change committee questioned the timing of the referral for creating a period of uncertainty for much-needed investment into energy infrastructure.

“There’s a lot of uncertainty in the energy sector at the moment anyway; I don’t know if this incremental uncertainty has worsened things hugely,” Nolan told the committee, adding that market participants had welcomed the referral.

The committee was particularly irate about the vertically integrated big six energy firms – with both supply and generation arms – being able to sell to themselves, questioning whether the practice raises wholesale prices and whether it would be looked at by the CMA.

Nolan said it was likely that the CMA referral would look at vertical integration but avoided making a definitive answer, as it would be down to the CMA itself.

“Wholesale prices have not risen significantly over the past three years. In fact, over the past couple of months wholesale prices have started to fall,” he said.

“If markets are working effectively you’d expect to see that reflected in retail prices in time. If it doesn’t lead to a retail price fall, that would be further evidence that the market is not working well.”